Term
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Definition
Curve that shows the run trade-off between inflation and unnemployment
Low inflation=High unemployment |
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Term
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Definition
| No relationship between inflation and unemployment |
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Term
| (Equation) Unemployment Rate |
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Definition
NRU + a(Actual Infl) - a(Expected Infl)
IN LR: Actual=Expected
IN SR: Expected may not=actual |
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Term
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Definition
| Claim that unemployment eventually returns to its normal rate |
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Term
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Definition
| The percentage of output lost by reducing inflation by 1% |
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Term
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Definition
| People use all information available, including information about public policies, when they form their expectations |
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Term
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Definition
| What must be given up to obtain an item |
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Term
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Definition
| A country has an absolute advantage if it can produce more of a specific product than some other country when it devotes all of its resources to production of the good |
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Term
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Definition
| A country has a comparative advantage if it can produce a product at a lower opportunity cost than another country |
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Term
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Definition
| The rate at which units of 1 product can be exchanged for units of another product |
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Term
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Definition
| A country that cannot affect world prices |
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Term
| Benefits to Consumers From Imports |
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Definition
1. Increase in consumption
2. Increase in variety of goods consumed
3. Increase in competiton
4. Lower cost through economies of scale 5. Enhanced flow of ideas |
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Term
| Effects of the Small Country Assumption |
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Definition
1. Country is small enough so that whatevery they demand can be supplied
2. Country's demand doesn't affect prices
3. Supply comes first from elastic firms, remainder from foreign firms |
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Term
| Trade Barrier Justifications |
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Definition
1. Jobs argument: Cheap imports causes loss of jobs, decrease in sector employment, increase in complimentary sector employment
2. National Security argument: Frequently exaggerated claims
3. Infant Industry argument: Enact high trade barriers to protect young industry
4. Unfair Competition argument
5. Protection as a Bargaining Chip
6. Efficiency vs. Equality |
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Term
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Definition
| A tax imposed by a nation on an imported good |
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Term
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Definition
| Tariff designed to reduce income for government |
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Term
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Definition
| Tariff designed to shield domestic producers |
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Term
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Definition
| A limit imposed by a nation on the quantity of a good that may be traded |
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Term
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Definition
| "Unreasonable" licensing requirements or standards |
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Term
| Effects of a Trade Barrier Against Improts |
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Definition
1. Decline of imports
2. Tariff revenue
3. Decrease in domestic market production
4. Decrease in consumption
5. Decreased variety of goods
6. Higher costs
7. (?) Decrease in Exports (May or may not happen) |
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Term
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Definition
1. USA economy grows faster than major trading partners
2. Increase in price of oil
3. China
- Fixed Exchange Rate
- Low income
4. Declining USA savings rate |
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Term
| Net Capital Outflow (NCO) |
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Definition
| Purchase of foreign assets by domestic residents - purchase of domestic assets by foreigners |
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Term
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Definition
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Term
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Definition
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Term
| I=? (In terms of national savings) |
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Definition
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Term
Relationship between investment, savings, and net capital outflows
(If NCO<0)
(If NCO>0) |
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Definition
NCO<0, then I>S
Implies NCO=NX<0
NCO>0, then I<S
Implies NCO=NX>0 |
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Term
| Nominal Exchange Rate (e) |
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Definition
| The rate at which the currency of one nation can be exchanged for the currency of another nation |
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Term
PD=Price of a good in a domestic currency (equation)
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Definition
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Term
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Definition
| A decrease in the value of a currency as measured by the amount of foreign currency it can buy |
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Term
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Definition
| The increase in the value of a currency as measured by the amount of foreign currency it can buy |
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Term
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Definition
| The rate at which a person can trade the goods and services of one country for the goods and services of another |
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Term
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Definition
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Term
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Definition
| A theory of nominal exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries |
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Term
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Definition
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Term
| Two Forms of Capital Outflow |
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Definition
1. Foreign direct investment
2. Foreign portfolio investment |
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Term
| Variables that influence NCO |
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Definition
Real interest rates, domestic and foreign
Percieved risk of holding assets
Government policies affecting ownership of foreign assets |
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Term
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Definition
| Demand and supply determine the exchange rate, no government intervention |
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Term
| Disadvantages of Flexible Exchange Rate |
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Definition
1. Uncertainty and diminished trade
3. Terms of trade change
3. Instability from exaggerated business cycle movements |
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Term
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Definition
| Government determines an exchange rate and make necessary adjustments in their economies to maintain those rates |
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Term
Fixed Exchange Rate Controls
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Definition
1. Trade policies (change NX)
2. Exchange controls and rationing
3. Domestic macroeconomic adjustment
4. Currency intervention |
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Term
| Disadvantages of Fixed Exchange Rate |
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Definition
1. No monetary policy to smooth out business cycles
2. Can't freely change supply of your currency in foreign exchange market
3. Country must use resources t accommodate changes in foreign exchange market |
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Term
| Managed Exchange Rate Float |
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Definition
| A currency is allowed to change as a result of changes in demand and supply, but is managed by government if changes are "extreme" |
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Term
| Benefit of Managed Exchange Rate Float |
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Definition
| Decreases fluctuations, still allows monetary policy |
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Term
| Concerns of Managed Exchange Rate Float |
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Definition
| Can still have big fluctuations |
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