Chapter 06 Flashcards
Net exports
Exports minus imports.
Trade balance
the receipts from exports minus the payments for imports.
Net capital outflow
the net flow of funds being invested abroad; domestic saving minus domestic investment; also called net foreign investment.
Trade surplus
An excess of exports over imports.
Trade deficit
An excess of imports over exports.
Balanced trade
A situation in which the value of imports equals the value of exports, so net exports equals zero.
Small open economy
An open economy that takes its interest rate as given by world financial markets; an economy that, by virtue of its size, has a negligible impact on world markets and, in particular, on the world interest rate.
World interest rate
the interest rate prevailing in world financial markets.
Nominal exchange rate
the rate at which one country’s currency trades for another country’s currency.
Real exchange rate
the rate at which one country’s goods trade for another country’s goods.
Purchasing-power parity
the doctrine according to which goods must sell for the same price in every country, implying that the nominal exchange rate reflects differences in price levels.
