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Flashcards in Chapter 4 Deck (22):
1

Trade occurs

when goods, services, or resources are exchanged, sometimes using money as a medium of exchange

2

Barter is

trade without money

3

The incentive to trade comes from

three motivations: differing tastes, differing abilities, and more highly populated markets giving rise to better use of resources through specialization

4

When people trade voluntarily,

they do so to make themselves better off

5

An individual has a comparative advantage at producing a good

if he/she has a lower opportunity cost of producing the good in terms of other goods sacrificed.

6

Differences in abilities or resources give rise to

comparative advantage

7

Trade is limited by

transaction costs

8

Transaction costs arise due

due to the sacrifice that must be made to search out, negotiate, and complete an exchange.

9

Mercantilism

is aimed at keeping as much money in the country as possible--not letting it escape.

10

To mercantilists,

importing is bad and exporting is good

11

Mercantilists are obsessed with

the balance of payments.

12

The balance of payments is

the dollar value of the exported goods and services minus the imported goods and services.

13

A positive balance of payments is

a trade surplus.

14

A negative balance of payments is

a trade deficit.

15

For every flow of money

there is a matching flow of goods

16

Mercantilists only look at

the current account.

17

The current account

measures monetary flow of goods and services.

18

The capital account

measures financial instruments (stocks and bonds of US companies

19

The capital and current accounts

must always balance out each other

20

The exchange rate

is the price of one country's currency for another country's currency.

21

The exchange rate

depends on the supply and demand for the currency.

22

To appreciate

means to gain in value compared to something else.