This is said to take place between countries when there are no barriers to tradfe put in place by governments or international organiztions.
What is free trade?
100
An exchange rate regime where a raise in the value of a currency is refered to as a "revaluation" and a fall in the value of a currency is refered to as a "devaluation".
What is a fixed exchange rate?
100
Direct investment; portfolio investment; reserve assets
What are the components of the financial account?
100
These are agreements relating to trade between one or more countries.
What are multilateral trade agreements?
100
This is the formula for terms of trade (without abbreviations or shortcuts, of course).
What is the (weighted index of average export prices/weighted index of average import prices)x 100?
200
Lower prices, greater choice, differences in resources, economies of scale, increased competition, more efficient allocation of resources, a source of foriegn exchange
What are gains from trade?
200
To increase employment; to fight inflation; to maintain a fixed exchange rate; to avoid large fluctuations in a floating exchange rate; to achieve relative exchange rate stability in order to improve business confidence; to improve a current account deficit
What are reasons why governments may intervene in the foreign exchange market to influece the value of their currency?
200
This is the formula for the balance of payments account.
What is current account=capital account+financial account+net errors and omissions
200
This is defined as a group of countries that join together in some form of agreement in order to increase trade between themselves and/or to gain economic benefits from cooperation on some level.
What are trading blocs?
200
When export prices rise relative to import prices, we say this has occured.
What is an improvement in the TOT?
300
"Red tape", health and safety and environmental standards, embargoes
What are administrative barriers to trade?
300
downward pressure on inflation, high quantity of imports may be purchased, may force domestic producers to improve efficiency:: damage to export industries, damage to domestic industries
What are advantages and disadvantages of a high exchange rate?
300
The IMF guidelines state that this type of investment occurs if it accounts for at least 10% of the ownership of the country; however many countries set a higher percentage of ownership to meet this definition.
What is forgeign direct investment (FDI)?
300
DOUBLE JEOPARDY!
This type of trading bloc rests on an agreement made between countries, where the countries agree to trade freely among themselves, but are able to trade with countries outside the agreement in whatever way they wish.
What is a free trade area?
300
Changes in the conditions of demand and supply; changes in relative inflation rates; changes in exchange rates.
What are short-run causes of changes in a country's terms of trade?
400
HL: Proven mathematically by David Ricardo in the early nineteenth century, this economic condition is said to exist when a country can produce a good at a lower opportunity cost than another country.
What is comparative advantage?
400
Using reserves of foreign currencies to buy, or sell, foreign currencies; Changing interest rates
What are the two main methods governments use to attempt to manipulate the exchange rate?
400
These include deflationary fiscal and monetary policies and are designed to reduce the overall expenditure in the ecoomy, shifting the AD to the left.
What are expenditure reducing policies?
400
This type of trading bloc is a customs union with common policies on product regulation, and free movement of goods, services, capital and labour.
What is a common market?
400
This occurs to the indicies of the export and import prices to reflect the relative importance of different goods and services to the country's export revenue and import expenditure.
What is weighted?
500
This type of protectionism places a physical limit on the numbers or value of goods that can be imported into a country.
What is a quota?
500
Creating uncertaintly on international markets; affected by events such as government intervention, terrorist attacks, natural disasters, and speculation; may worsen levels of inflation.
What are disadvantages of a floating exchange rate?
500
Foreign reserves may be depleted from being used to increase the capital account; Foreign investors may pull investments when confidence in the domestic economy is low, thereby reducing the capital account; high interests rates on borrowed funds will increase the current account deficit for years to come.
What are consequences of a current account deficit?
500
Exchange rate fluctuations disappear; the common currency is more stable against speculation; business confidence in the member countries tends to improve leading to both internal growth and trade growth; transaction costs are eliminated; Price differences become more obvious between countries and should lead to price equilization across borders.
What are advantages of a monetary union for member countries?
500
If a country is experiencing an improvement in the TOT due to inflation, we must consider this before determining if the improvement in the TOT will lead to an improvement in the country's current account balance.
What is price elasticity of demand for the country's exports?