Open Economy Macroeconomics Flashcards
When does a producer have an absolute advantage
When they can produce more unit per hour than other producers
When does a producer have a comparative advantage
When the producer has a lower opportunity cost to produce their good compared to other producers
What is a tariff
A government tax imposed on exports and imports of goods
What is a trade surplus
When the trade balance is positive
What is a trade defecit
When trade balance is negative
What is the current account
The net flow of payments made to domestic residents from foreigners
What is the financial account
increase in domestic assets held by foreigners minus the increase in foreign assets held domestically
Define Nominal Exchange rate
the rate at which one countries currency can be exchanged for another countries currency
What does a country do with a flexible exchange rate
the country does not intervene in the foreign exchange market
What does a country do with a fixed exchange rate
the country sets a value and intervenes to maintain that value
what is the forex market
The market where currencies are traded and nominal interest rates are determined
