Unit 3 International Economics Flashcards
absolute advantage
where a country is able to produce more output than other countries using the same input of factors of production
administrative barriers
any administrative requirement that might prevent or reduce the amount of imports
anti-dumping
legislation to protect an economy against the importing of a good at a price below its unit costs of production
appreciation
an increase in the value of a country’s currency in a floating exchange rate system
balance of payments
accounting record of all transactions (debits and credits) between the households, firms and government of one country, and the rest of the world
common market
customs union with common policies on product regulation, and free movement of goods, services, capital and labour
comparative advantage
where a country is able to produce a good at a lower opportunity cost of resources than another country
current account (of the BoP)
measure of the international flow of funds from trade in goods and services, plus net investment income flows (profit, interest and dividends) and net transfers of money (foreign aid, grants and remittances)
current account deficit
where revenue from the exports of goods and services and income flows is less than the expenditure on the import of goods and services and income flows in a given year
current account surplus
where revenue from the exports of goods and services and income flows is greater than the expenditure on the import of goods and services and income flows in a given year
customs union
an agreement made between countries, where the countries agree to work towards free trade among themselves and they also agree to adopt common external barriers against any country attempting to import into the customs union
depreciation
decrease in the value of a country’s currency in a floating exchange rate system
deterioration in the terms of trade
where the index of the average price of exports falls relative to the index of the average price of imports
dumping
selling of a good in another country at a price below its unit cost of production
economic integration
refers to economic interdependence between countries, usually achieved by agreement between countries to reduce or eliminate trade barriers between them
exchange rate
value of one currency expressed in terms of another currency
financial account (of the BoP)
measure of the net change in foreign ownership of domestic financial assets, including foreign direct investment, portfolio investment and changes in foreign reserves
fixed exchange rate
exchange rate regime where the value of a currency is fixed to the value of another currency
floating exchange rate
exchange rate regime where the value of a currency is allowed to be determined solely by the demand for, and supply of, the currency on the foreign exchange market
free trade area
agreement made between countries, where the countries agree to work towards free trade among themselves, but are able to trade with countries outside the free trade area in whatever way they wish
improvement in the terms of trade
where the index of the average price of exports rises relative to the index of the average price of imports
International Monetary Fund IMF
organization working to foster global monetary cooperation, secure financial stability, facilitate international trade and reduce poverty
international reserves
foreign currencies held by governments (central banks) as a result of international trade
J-curve
suggests that in the short term, a fall in the value of the currency will lead to a worsening of the current account deficit, before things improve in the long term
Marshall-Lerner condition
states that a depreciation, or devaluation, of a currency will only lead to an improvement in the current account balance of the elasticity of demand for exports plus the elasticity of demand for imports is greater than one
monetary union
where two or more countries share the same currency and have a common central bank
overvalued currency
when the value of a currency is believed to be higher than what is perceived to be its market equilibrium value
preferential trade agreement
where a country agrees to give preferential access, e.g. reduced tariffs, to certain products from one or more trading partners
purchasing power parity PPP
special exchange rates between currencies that makes the buying power of each currency equal to their buying power of US$ 1 and therefore equal to each other
quota
import barriers that set limits on the quantity or value of imports that may be imported into a country
revaluation
increase in the value of a country’s currency in a fixed exchange rate system
speculation (in exchange rates context)
where foreign traders make a decision to buy or sell a currency based on their expectations of future exchange rate movements
tariff
duty (tax) that is placed upon imports to protect domestic industries from foreign competition
terms of trade
index that shows the value of a country’s average export prices relative to their import prices
trade
exchange of goods or services
trade barriers
anything which prevents free trade between two countries, e.g. tariffs, quotas
international trade
exchange of goods or services between two countries
trade bloc
any association of one or more countries where an agreement is made to reduce trade barriers
trade creation
occurs when the entry of a country into a customs union leads to the production of a good moving from a high-cost producer to a low-cost producer
trade diversion
occurs when the entry of a country into a customs union leads to the production of a good moving from a low-cost producer outside the union to a high-cost producer inside the union
undervalued currency
when the value of a currency is believed to be lower than what is perceived to be its market equilibrium value
World Bank
organization whose main aims are to provide aid and advice to developing countries, as well as reducing poverty levels and encouraging international investment
World Trade Organization WTO
international body that sets the rules for global trading and resolves disputes between its member countries; it also hosts negotiations concerning the reduction of trade barriers between its member nations
