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

Scarcity
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When something is both desired and limited in supply. All resources (land, labor and capital) are limited in supply, yet desired for their use in the production of goods and services.

Scarcity
Financial account
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Measures the flow of funds for investment in real assets (such as factories or office building) or financial assets (such as stocks and bonds) between a nation and the rest of the world.

Financial account
Terms of Trade
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The ratio of an index of a nation’s export prices to its import prices. An improvement in the terms of trade means export prices have risen relative to import prices. A worsening means import prices have risen relative to export prices.

Terms of Trade
Devaluation
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When a government or a central bank intervenes in the market for its own currency to weaken it relative to another currency or currencies. May be achieved through measures such as reducing domestic interest rates, selling the currency on foreign exchange markets, or imposing foreign exchange controls that limit the amount of foreign investment in the country, reducing demand for the currency abroad.

Devaluation
J-Curve
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A graph showing the likely change in a nation’s current account balance over time following a depreciation of the nation’s currency. Called “J-curve” because in the short-run, the current account is likely to move down, into deficit, but in the long-run (once consumers at home and abroad become more responsive to the weaker currency), net exports will increase and the current account will move towards surplus.

J-Curve
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
Opportunity cost
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What must be given up to have anything else. Not necessarily monetary costs, rather include what you could do with the resources you use to undertake any activity or exchange.

Opportunity cost
Improvement in terms of trade
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When the price of a nation’s exports rises relative to the price of its imports. May result in an improvement in the current account balance if demand for the country’s exports is inelastic relative to its import demand, or a worsening in the current account balance if export demand is elastic relative to import demand.

Improvement in terms of trade
Absolute advantage
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When a country or individual has can produce a good using fewer resources than another country or individual

Example: With 100 acres of land, the United States can produce 20,000 bushels of rice, while China can produce 30,000 bushels of rice on 100 acres. China has an absolute advantage in the production of rice.

Absolute advantage
Revaluation
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When a government or central bank intevenes in the market for its own currency on foreign exchange market to raise its value relative to another currency or currencies. Measures may include raising domestic interest rates, purchasing the currency using foreign exchange reserves, or restricting the outflow of capital for foreign investment (exchange controls).

Revaluation

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