4.1 International Economics Flashcards
Balance of Trade
The difference in value between a country’s imports and exports
Balance of Payments
The difference in total value between payments into and out of a country
Absolute Advantage
A country’s ability to produce a good or service more efficiently than its competitors
Appreciation
A rise in the value of a currency in a floating exchange rate system
Capital account
A part of the balance of payments: records debt forgiveness, inheritance taxes and capital transfers of ownership (transfers of financial assets and sales of assets)
Common Market
Where there is free trade in goods and services as well as free movement of factors of production between member countries, imposing a common external tariff
Comparative Advantage
When a country’s economy is able to produce a good at a lower opportunity cost than another economy
Current account
An account that measures the inflow and outflow of goods and services, and investment to and from an economy, this involves balance of trade (X-M), government transfers and foreign loans
Customs Union
A free trade area with common external barriers
Depreciation
When a country’s currency falls in value in a floating exchange rate system
Devaluation
The fall in the value of a currency in a fixed exchange rate system
Exchange rate
The rate at which one country’s currency can be exchanged for other currencies in the foreign exchange (FX) market
Fixed exchange rate
When the value of a currency is kept the same as another currency.
Floating exchange rate
A system in which the value of a currency fluctuates according to the free market forces of demand and supply
Free trade area
An agreement between a group of countries that allows free trade between them meaning there are low restrictions
