AP Macro Ch. 31 Open-Economy Macro
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_________ is an economy that does not interact with
other economies in the world.
Open Economy
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________ are goods and services that are produced
domestically and sold abroad.
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AP Macro Ch. 31 Open-Economy Macro
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_______ is an excess of imports over exports.
Trade Surplus
Trade Balance
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Trade Balance
_______ is an excess of exports over imports.
_________ is a situation in which exports equal
imports.
AP Macro Ch. 31 Open-Economy Macro
_________ is the value of a nation’s exports minus the
value of its imports, also called net exports.
Net Exports
AP Macro Ch. 31 Open-Economy Macro
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Imports
________ is the value of a nation’s exports minus the
value of its imports, also called the trade balance.
AP Macro Ch. 31 Open-Economy Macro
AP Macro Ch. 31 Open-Economy Macro
_________ are goods and services that are produced
abroad and sold domestically.
Exports
AP Macro Ch. 31 Open-Economy Macro
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_______ is an economy that interacts freely with other
economies in the world.
Closed Economy
AP Macro Ch. 31 Open-Economy Macro
AP Macro Ch. 31 Open-Economy Macro
Trade deficit
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AP Macro Ch. 31 Open-Economy Macro
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What are the first three factors that influence a country’s
exports, imports, and net exports?
The taste of consumers for domestic and foreign goods.
The prices of goods at home and abroad.
The exchange rates.
AP Macro Ch. 31 Open-Economy Macro
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What are the last three factors that influence a country’s
exports, imports, and net exports?
The incomes of consumers home and abroad.
The cost of transporting good from country to county.
Government policies toward international trade.
AP Macro Ch. 31 Open-Economy Macro
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_________ occurs when a capital investment is owned
and operated by a foreign entity.
Foreign direct investment
AP Macro Ch. 31 Open-Economy Macro
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Positive
______ is the purchase of foreign assets by domestic
residents minus the purchase of domestic assets by
foreigners.
Net capital outflow (NCO)
AP Macro Ch. 31 Open-Economy Macro
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_________ involves an investment that is financed with
foreign money but operated by domestic residents.
AP Macro Ch. 31 Open-Economy Macro
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When net capital outflow is _________, domestic
residents are buying fewer foreign assets than foreigners
are buying domestic assets. The country is experiencing
a capital inflow.
Negative
AP Macro Ch. 31 Open-Economy Macro
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What are the four factors that influence a country’s net
capital outflow?
The real interest rates being paid on foreign assets.
The real interest rates being paid on domestic assets.
The perceived economic & political risks of holding
assets abroad.
Gov’t. policies that affect foreign ownership of
domestic assets.
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_________ measures the imbalance between the amount
of foreign assets bought by domestic residents and the
amount of domestic assets bought by foreigners in
world financial markets.
Net capital outflow
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Foreign portfolio investment
When net capital outflow is _______, domestic
residents are buying more foreign assets than foreigners
are buying domestic assets. Capital is flowing out of
the country.
AP Macro Ch. 31 Open-Economy Macro
AP Macro Ch. 31 Open-Economy Macro
AP Macro Ch. 31 Open-Economy Macro
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________ measure the imbalance between a country’s
exports and imports in world markets for goods and
services.
Net exports
AP Macro Ch. 31 Open-Economy Macro
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For an economy, net exports must be equal to ______.
Net capital outflow
AP Macro Ch. 31 Open-Economy Macro
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When a nation is running a _______, it must be using
the foreign currency to purchase foreign assets. Thus,
capital if flowing out of the country (NCO >O).
Trade surplus (NX >O)
AP Macro Ch. 31 Open-Economy Macro
AP Macro Ch. 31 Open-Economy Macro
When a nation is running a _________, it must be
financing the net purchase of these goods by selling
assets abroad. Thus, capital is flowing into the country
(NCO<O).
Trade deficit (NX < O)
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AP Macro Ch. 31 Open-Economy Macro
The net value of the goods a services sold by a country
(________) must equal the net value of the assets
acquired (___________).
Net exports = net capital outflow
AP Macro Ch. 31 Open-Economy Macro
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Appreciation
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Real exchange rate
AP Macro Ch. 31 Open-Economy Macro
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______ is a decrease in the value of a currency as
measured by the amount of foreign currency it can buy.
AP Macro Ch. 31 Open-Economy Macro
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What is the formula for calculating the real exchange
rate?
Real exch. rate = Nominal exchange rate x domestic P
Foreign price
Real exchange rate
The _______ is a key determinant of how much a
country exports and imports.
_________ is the rate at which a person can trade the
currency on one country for the currency of another.
Depreciation
The _________ is the rate at which a person can trade
the goods and services of one country for the goods and
services of another.
AP Macro Ch. 31 Open-Economy Macro
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Nominal exchange rate
_________ is an increase in the value of a currency as
measured by the amount of foreign currency it can buy.
AP Macro Ch. 31 Open-Economy Macro
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AP Macro Ch. 31 Open-Economy Macro
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(VERY IMPORTANT)
A depreciation in the U.S. real exchange rate means that
U.S. goods have become _____ relative to foreign
goods. U.S. exports will _____, imports will _____ and
net exports will _______.
Cheaper; rise; fall; increase
AP Macro Ch. 31 Open-Economy Macro
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(VERY IMPORTANT)
An appreciation in the U.S. real exchange rate means
that U.S. goods have become _____ relative to foreign
goods. U.S. exports will _____, imports will _____,
And net exports will ______.
More expensive; fall; rise; decline
AP Macro Ch. 31 Open-Economy Macro
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Domestic saving must equal investment in a ______
economy, but not a _________ economy.
If there is a ______, then saving is less than domestic
investment and Y < C + I + G.
AP Macro Ch. 31 Open-Economy Macro
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AP Macro Ch. 31 Open-Economy Macro
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If the nominal exchange rate e is foreign currency per
dollar, the domestic price is P and the foreign price is
P*, then the real exchange rate is defined as _____.
Closed; open
More; fewer
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Negative; smaller
Trade surplus
A depreciation of the U.S. real exchange rate induces
U.S. consumers to buy _____ domestic goods and
______ foreign goods.
AP Macro Ch. 31 Open-Economy Macro
If a country has a trade deficit, its net capital outflow
must be _______ and saving is ____ than investment.
If there is a _______, then saving is greater than
domestic investment and Y > C + I + G.
AP Macro Ch. 31 Open-Economy Macro
________ is 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.
Trade deficit
Price levels
AP Macro Ch. 31 Open-Economy Macro
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Purchasing-power parity
Purchasing-power parity means that the nominal
exchange rate between the currencies of two countries
will depend on the ______ in those countries.
AP Macro Ch. 31 Open-Economy Macro
AP Macro Ch. 31 Open-Economy Macro
e(P/P*)
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AP Macro Ch. 31 Open-Economy Macro
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An appreciation of the U.S. real exchange rate induces
U.S. consumers to buy _______ domestic goods and
_________ foreign goods.
Fewer; more
AP Macro Ch. 31 Open-Economy Macro
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Purchasing-power parity describes the forces that
determine exchange rates in the ______.
When a country’s central bank increases the money
supply, its price level rises and its currency ______
relative to other countries in the world.
Appreciates
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If the purchasing-power parity holds, then the value of
the real exchange rate is equal to ______.
Long run
AP Macro Ch. 31 Open-Economy Macro
AP Macro Ch. 31 Open-Economy Macro
One
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AP Macro Ch. 31 Open-Economy Macro
When a country’s central bank decreases the money
supply, its price level falls and its currency ______
relative to other countries in the world.
Depreciates
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