International Economics Flashcards

Only 10 flashcards are shown at a time! Once you’ve mastered these 10 Economic terms, click the shuffle button below for 10 new terms. There are approximately 60 flashcards covering International Economics

Commodity agreements
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An agreement between nations that produce a particular commodity (for example, coffee) meant to stabilize the global output of the good to maintain stable prices over time. Reduces fluctuations in prices of the commodities that many people in the developing world are involved in the production of.

Commodity agreements
Deterioration in terms of trade
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Occurs when the price of a nation’s exports decreases relative to the price of its imports. May lead to an improvement in the current account balance if demand for imports is elastic relative to export demand, or a worsening in the current account balance if import demand is relatively inelastic.

Deterioration in terms of trade
Net exports
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A component of aggregate demand. Equals the income earned from the sale of exports to the rest of the world minus expenditures by domestic consumers on imports.

Net exports
Marshall-Lerner Condition
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Determines how a depreciation in a currency’s exchange rate will affect the nation’s current account balance. If the combined price elasticities of demand for exports and imports is greater than one (elastic), then a depreciation of the currency will move the current account towards surplus. But if demand for exports and imports is inelastic, a weaker currency will move the current account towards deficit.

Marshall-Lerner Condition
Balance of Payments
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Measures all the monetary exchanges between one nation and all other nations. Includes the current account and the capital account.

Balance of Payments
Production possibilities curve
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A graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

Production possibilities curve
Import substitution
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A strategy for economic growth and development focused on producing goods for the domestic market to replace the goods that consumers may have bought from foreign firms previously. Requires the use of protectionism to keep foreign imports out of the domestic market. Also known as “inward-oriented growth strategy”.

Import substitution
Depreciation
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A decrease in the value of one currency relative to another, resulting from a decrease in demand for or an increase in the supply of the currency on the forex market.

Depreciation
Expenditure-reducing policies
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Measures a government may undertake to improve an imbalance in the current account. If a nation has a large current account deficit, a decrease in spending on imports move the current account towards surplus. Reducing overall spending in the economy (including on imports) by raising income taxes and reducing government spending (contractionary fiscal policies) can improve the trade balance.

Expenditure-reducing policies
Official reserves
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Foreign currencies held by a nation’s central bank, resulting from accumulations in the current account and the financial account in the nation’s balance of payments. To balance the two accounts in the balance of payments, a country’s official foreign exchange reserves measures the net effect of all the money flows from the other accounts.

Official reserves

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