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18 terms

Open-Economy Basic Concepts

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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 v alue 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
NCO=NX
The international flow of goods and services and the international flow of capital are two sides of the same coin; Because every international transaction involves an exchange of an asset for a good or service....
NX>0
Nation selling more goods and services to foreigners than it is buying from them(NCO>0)
NX<0
Nation is buying more goods and services from foreigners that it is selling to them(NCO<0)
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