Definitions Flashcards
(22 cards)
International trade
Exchange involved in buying and selling goods and services between countries
Imports M
Purchase of goods and services from abroad leading to an outflow of currency
Exports X
Sale of goods and services to buying from abroad leading to an inflow of currency
Absolute advantage
Where one country is able to produce more of a good or service, with the same amount of resources, than another
Reciprocal absolute advantage
Where in a theoretical world of two countries and two products, each has absolute advantage in one of the two products
Comparative advantage
Where one country can produce a good or service at a lower relative opportunity cost than others
Sacrifice less in production
Terms of trade
Price of a country’s exports relative to the price of its imports
Balance of payments BoP
Records all financial transactions made between consumers, businesses and their government in one country with there
Net primary income
Including income from interest, profits, dividends generated from foreign investment and migrant remittances
Net secondary income
Including annual contribution to EU, military aid and overseas development aid
Current account deficit
Net outflow of demand and income from the circular flow (leakage)
Current account surplus
New inflow of demand and income from the circular flow (injections)
Fixed exchange rate system
An exchange rate system where the value of one currency has a fixed value against other currencies
Rate is often set by the government
Freely floating exchange rate system
The value of a currency is allowed to find its own way to equilibrium without any government intervention
The value of currency will be determined by market forces of demand and supply
Hybrid exchange rate system
Combines the characteristics of fixed and freely floating exchange rate systems
The currency fluctuates but it does float in a fully free market
Devaluation
A process where by a government decrease the price of its currency relative to an agreed rate in terms of foreign currency
Revaluation
A process where by a government increase the price of its currency relative to an agreed rate in terms of foreign currency
The marshall-lerner condition
States that a depreciation in a currency will improve the balance of trade only if the price elasticity of demand of exports and imports are greater than 1 when combined
J-curve
The effect of a price change in he balance of payments will principally depend on the elasticity of demand for exports and imports
International competitiveness
Ability of an economy to compete fairly and successfully in markets for internationally traded goods and services that allows for rising standards of living over time
Visible trade
Trade in goods
Invisible trade
Trade in services
