UNIT 4 KEY TERMS Flashcards
international trade
selling and buying of goods and services between countries
free trade
absence of government intervention so that trade takes place without any barriers between countries
open economy
one that interacts freely with other economies around the world
(i.e. literally any economy besides North Korea or Cuba)
closed economy
one that DOESN’T interact freely with other economies around the world
(i.e. North Korea or Cuba)
visible exports/imports
goods
invisible exports/imports
services
international specialisation (definition includes HL concepts)
comparative advantage (CA) (HL only)
absolute advantage (AA) (HL only)
tariff
tax on imported good
quota
a legal limit of imports that can enter a country in 1 year
export subsidy
a direct payment to exporters from the government to lower the cost of production of exports, so that they can be more competitive in international markets
production subsidy
a direct payment from the government to domestic producers to decrease costs of production so that they can compete with imports
administrative barriers
any standards/regulations set by the government to increase the cost of production of imports or delay them entry into the country
infant industry
a new domestic industry that has not had time to establish and achieve efficiencies in production, hence unable to compete with more mature competitor firms from abroad
dumping
the intentional mass export of goods to other countries where those goods are sold below the importing country’s market price
economic integration
cooperation between countries and coordination of their economic policies, leading to increased economic links
preferential trade agreement (PTA)
agreement between 2 or more countries to lower trade barrier between each other on some products
bilateral trade
a preferential trade agreement between 2 countries
multilateral trade
a preferential trade agreement between many countries
regional trade
a preferential trade agreement between a group of countries within a geographical region
trading bloc
a group of countries that have agreed to reduce barriers between each other, to encourage freer trade between members
monetary union
occurs when the members of a common market adopt a common currency and a common central bank responsible for monetary policy
world trade organisation (WTO)
an international organisation that deals with rules of trade between their members
exchange rate
price of one currency expressed in terms of another currency
floating exchange rate
equilibrium exchange rate of a currency is determined by the supply and demand of the currency, without any government intervention
appreciation
rise in the market value of the currency in a floating ER system
depreciation
fall in the market value of the currency in a floating ER system
fixed exchange rate
a system in which the country’s Central Bank intervenes in the currency market to fix (peg) the
exchange rate in relation to another currency
managed exchange rate
a system where the exchange rate is allowed to fluctuate within a specified band around a desired valuation. (If it goes outside of this band then the Central Bank will intervene to bring it back within the band)
balance of payments
a record of all transactions between the residents of one country with the residents of all other countries in one year
current account
total value of the balance of trade of goods and services, income and current transfers
(basically (X-M) in the AD formula)
current account deficit
when the value of imports is greater than the value of exports
capital account
total value of capital transfers and transactions in non-produced, non-financial assets
financial account
the total value of foreign direct investments, portfolio investments, reserve assets and official borrowing
