AP®︎ Macroeconomics: Unit 6 Flashcards

An accounting record of all international transactions, equal to the current account plus the capital and financial account.

Records capital transfers and cross-border purchases and sales of financial and real assets.

Interest, dividends, and other income received from foreign investments minus payments to foreign investors.

One-way payments such as foreign aid, remittances, or grants received minus those sent abroad.

A surplus means total current-account credits exceed debits; a deficit means debits exceed credits.

Money flowing into a country is a credit; money flowing out is a debit.

Credits equal debits, so the current account plus the capital and financial account equals zero.

Add each account's components, then use CA plus CFA to find the overall balance.

Records net exports, net income from abroad, and net unilateral transfers.

Exports minus imports of goods and services; positive is surplus, negative is deficit.

A surplus means financial capital inflow; a deficit means financial capital outflow.

Two countries' exchange rates are inverses, so one currency's appreciation means the other's depreciation.

Convert values by multiplying an amount in one currency by the quoted exchange rate.

Greater preference for another country's goods raises demand for its currency and increases its value.

Higher income in one country increases imports, raising demand for foreign currency.

Higher inflation makes domestic goods relatively expensive, reducing demand for that country's currency.

Expectations about future currency values cause investors to buy or sell currencies now.

The price of one country's currency in terms of another country's currency.

A system where currency values are determined by supply and demand in foreign exchange markets.

The market where one country's currency is exchanged for another country's currency.

The exchange rate at which the quantity of a currency demanded equals the quantity supplied.

Appreciation is an increase in a currency's value relative to another currency; depreciation is a decrease in its value relative to another currency.

Shortages raise the exchange rate and surpluses lower it until equilibrium is restored.

The amounts of a currency buyers want and sellers offer at different exchange rates.

Demand comes from foreigners buying domestic goods and assets; supply comes from domestic purchases abroad.

Demand slopes downward and supply slopes upward as exchange rates change quantity demanded and supplied.

A shortage means quantity demanded exceeds supplied; a surplus means quantity supplied exceeds demanded.

Currency demand and supply shift with changes in tastes and demand for goods, services, and assets, relative incomes and prices, expected appreciation, interest rates, imports, and trade barriers.

Greater foreign demand for a country's exports increases demand for its currency.

Higher domestic prices reduce export demand and currency demand; lower prices increase both.

Higher foreign income increases demand for imports and for the exporting country's currency.

Higher real interest rates attract financial capital, increasing demand for that currency.

Higher currency demand causes appreciation, while lower currency demand causes depreciation.

Higher currency supply causes depreciation, while lower currency supply causes appreciation.

Expansionary fiscal policy tends to depreciate a currency, while contractionary fiscal policy tends to appreciate it.

Expansionary monetary policy tends to depreciate a currency, while contractionary monetary policy tends to appreciate it.

Tariffs and quotas reduce currency supply in foreign exchange markets, causing appreciation.

Higher net exports shift aggregate demand right; lower net exports shift aggregate demand left.

A stronger currency reduces exports, increases imports, and lowers net exports.

A weaker currency increases exports, decreases imports, and raises net exports.

Higher net exports increase aggregate demand, while lower net exports decrease aggregate demand.

Higher currency demand or lower supply causes appreciation; lower demand or higher supply causes depreciation.

The movement of financial capital across countries for investment in assets.

Financial capital moves toward countries with higher real interest rates and away from lower-yield countries.

The amount of capital entering a country minus the amount leaving it.

Short-run monetary policy changes domestic interest rates, which changes net capital inflows or outflows.

Foreign asset purchases bring funds in, while domestic purchases of foreign assets send funds out.

Capital inflows raise demand for domestic currency, while outflows raise demand for foreign currency.

Capital inflows increase loanable funds supply, while outflows decrease it and raise interest rates.