UNIT 4 KEY TERMS

Question 1

international trade

Answer 1

selling and buying of goods and services between countries

Question 2

free trade

Answer 2

absence of government intervention so that trade takes place without any barriers between countries

Question 3

open economy

Answer 3

one that interacts freely with other economies around the world
(i.e. literally any economy besides North Korea or Cuba)

Question 4

closed economy

Answer 4

one that DOESN’T interact freely with other economies around the world
(i.e. North Korea or Cuba)

Question 5

visible exports/imports

Answer 5

goods

Question 6

invisible exports/imports

Answer 6

services

Question 7

international specialisation (definition includes HL concepts)

Question 8

comparative advantage (CA) (HL only)

Question 9

absolute advantage (AA) (HL only)

Question 10

tariff

Answer 10

tax on imported good

Question 11

quota

Answer 11

a legal limit of imports that can enter a country in 1 year

Question 12

export subsidy

Answer 12

a direct payment to exporters from the government to lower the cost of production of exports, so that they can be more competitive in international markets

Question 13

production subsidy

Answer 13

a direct payment from the government to domestic producers to decrease costs of production so that they can compete with imports

Question 14

administrative barriers

Answer 14

any standards/regulations set by the government to increase the cost of production of imports or delay them entry into the country

Question 15

infant industry

Answer 15

a new domestic industry that has not had time to establish and achieve efficiencies in production, hence unable to compete with more mature competitor firms from abroad

Question 16

dumping

Answer 16

the intentional mass export of goods to other countries where those goods are sold below the importing country’s market price

Question 17

economic integration

Answer 17

cooperation between countries and coordination of their economic policies, leading to increased economic links

Question 18

preferential trade agreement (PTA)

Answer 18

agreement between 2 or more countries to lower trade barrier between each other on some products

Question 19

bilateral trade

Answer 19

a preferential trade agreement between 2 countries

Question 20

multilateral trade

Answer 20

a preferential trade agreement between many countries

Question 21

regional trade

Answer 21

a preferential trade agreement between a group of countries within a geographical region

Question 22

trading bloc

Answer 22

a group of countries that have agreed to reduce barriers between each other, to encourage freer trade between members

Question 23

monetary union

Answer 23

occurs when the members of a common market adopt a common currency and a common central bank responsible for monetary policy

Question 24

world trade organisation (WTO)

Answer 24

an international organisation that deals with rules of trade between their members

Question 25

exchange rate

Answer 25

price of one currency expressed in terms of another currency

Question 26

floating exchange rate

Answer 26

equilibrium exchange rate of a currency is determined by the supply and demand of the currency, without any government intervention

Question 27

appreciation

Answer 27

rise in the market value of the currency in a floating ER system

Question 28

depreciation

Answer 28

fall in the market value of the currency in a floating ER system

Question 29

fixed exchange rate

Answer 29

a system in which the country’s Central Bank intervenes in the currency market to fix (peg) the exchange rate in relation to another currency

Question 30

managed exchange rate

Answer 30

a system where the exchange rate is allowed to fluctuate within a specified band around a desired valuation. (If it goes outside of this band then the Central Bank will intervene to bring it back within the band)

Question 31

balance of payments

Answer 31

a record of all transactions between the residents of one country with the residents of all other countries in one year

Question 32

current account

Answer 32

total value of the balance of trade of goods and services, income and current transfers (basically (X-M) in the AD formula)

Question 33

current account deficit

Answer 33

when the value of imports is greater than the value of exports

Question 34

capital account

Answer 34

total value of capital transfers and transactions in non-produced, non-financial assets

Question 35

financial account

Answer 35

the total value of foreign direct investments, portfolio investments, reserve assets and official borrowing