Principles of Macroeconomics (Chapter 20)
Appreciation of Currency
the rise in value of one currency relative to another.
Balance of Payments
the record of a country’s transactions in goods, services, and assets with the rest of the world; also the record of a country’s sources (supply) and uses (demand) of foreign exchange.
Balance of Trade
a country’s exports of good and services minus its imports of goods and services.
Balance on Capital Account
in the US, the sum of the following: the change in private US assets abroad, the change in foreign private assets in the US, the change in US government assets abroad, and the change in foreign government assets in the US.
Balance on Current Account
net exports of goods plus net exports of services plus net investment income plus net transfer payments.
Depreciation of a Currency
the fall in value of one currency relative to another.
the price of one country’s currency in terms of another country’s currency; the ratio at which two currencies are trade for each other.
Floating or Market-determined Exchange Rates
exchange rates that are determined by the unregulated forces of supply and demand.
all currencies other than the domestic currency of a given country.
following a currency depreciation, a country’s balance of trade may get worse before it gets better. the graph showing this effect is shaped like the letter J.
Law of One Price
if the costs of transportation are small, the price of the same good in different countries should be roughly the same.
Marginal Propensity to Import
the change in imports caused by a $1 change in income.
Net Exports of Goods and Services
the difference between a country’s total exports and total imports.
Price Feedback Effect
the process by which a domestic price increase in one country can “feed back” on itself through export and import prices. an increase in the price level in one country can drive up prices in other countries. this in turn further increases the price level in the first country.
Purchasing Power-Parity Theory
a theory of international exchange holding that exchange rates are set so that the price of similar goods in different countries is the same.
occurs when a country’s exports of goods and services are less than its imports of goods and services.
Trade Feedback Effect
the tendency for an increase in the economic activity of one country to lead to a worldwide increase in economic activity, which then feeds back to that country.