| Term | Definition |
|---|
| Closed Economy | an economy that does not interact with other economies in the world |
| Open Economy | an economy that interacts freely with other economies around the world |
| Exports | goods and services that are produced domestically and sold abroad |
| Imports | goods and services that are produced abroad and sold domestically |
| Net Exports | the value of a nation's exports minus the value of its imports; also called the trade balance |
| Trade Balance | the value of a nation's exports minus the value of its imports; also called net exports |
| Trade Surplus | an excess of exports over imports |
| Trade Deficit | an excess of imports over exports |
| Balanced Trade | a situation in which exports equal imports |
| Net Capital Outflow | the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners |
| Foreign Direct Investment | if McDonald's opens up a fast-food outlet in Russia |
| Foreign Portfolio Investment | if an American buys stock in a Russian corporation |
| Net Foreign Investment | net capital outflow |
| Nominal Exchange Rate | the rate at which a person can trade the currency of one country for the currency of another |
| Appreciation | an increase in the value of a currency as measured by the amount of foreign currency it can buy |
| Depreciation | a decrease in the value of a currency as measured by the amount of foreign currency it can buy |
| Real Exchange Rate | the rate at which a person can trade the goods and services of one country for the goods and services of another |
| Purchasing Power Parity | a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries |
| Y=C+I+G+NX | gross domestic product equals consumption plus investment plus government purchases plus net exports |
| NCO=NX | net capital outflow equals net exports |
| S=I+NCO | saving equals domestic investment plus net capital outflow |
Combine with other sets
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