May 5, 2014
1. Begin Unit 6: 10-15% of AP Macro Exam
Open Economy: International Trade and Finance
2. Comparative Advantage Review On Website
3. Unit 6 Lesson 1: Notes- Balance of Payments
Account
4. AP Micro Unit II Review Quiz
5. Return AP Macro Unit 5 Exam
Balance of Payments Accounts
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Balance of Payments Account: The sum of all transactions between U.S. residents and
residents of all foreign nations during some period of time.
1. Current Account: Records U.S. exports and U.S. imports of goods and services.
Also includes net investment income (US earnings on capital investment abroad MINUS
foreign earnings from capital invested in the US) and net transfers (foreign aid sent to
other countries, funds immigrants send to family abroad, pensions paid to U.S. citizens
living abroad)
2. Financial (Capital) Account: Records the purchase and sale of assets domestically and
abroad.
Examples: US investors buy a hotel in Tokyo or stock in a Swedish Company; Foreign
investors buy a factory in the US or stock in US Company.
THE BALANCE ON THE CURRENT ACCOUNT AND THE BALANCE ON THE FINANCIAL
ACCOUNT MUST ALWAYS SUM TO ZERO!
Credits: Transactions for which the U.S. receives income (i.e. exports)
Debits: Transactions that the U.S. must pay for: (i.e. imports)
International Trade
• Comparative Advantage and Specialization allow
for economic growth and efficiency.
• NAFTA, WTO, EU, etc: Free trade areas that
promote international trade.
• Trade barriers like quotas and tariffs can create
more economic loss than benefits.
• Quota: Limit on # of imports allowed into a
country
• Tariff: Tax on Imports
May 7, 2014
• FOREX Market Notes and Activities 7-3 and 7-4
• AP Micro Unit III Review Quiz: Theory of the Firm
The FOREX
• When goods are purchased from another country, they
must be paid for in that country’s currency (so exporters
can spend the currency )
• So international trade requires that currencies also be
traded.
• When Americans buy foreign goods, US Dollars are
supplied in the FOREX.
• When foreigners buy US goods, US Dollars are demanded
in the FOREX.
• The value of a foreign nation’s currency in relation to your
own currency is called the exchange rate (equilibrium price
at which currencies are traded)
FOREX
An increase in the value of a currency
is called appreciation.
A decrease in the value of a currency
is called depreciation.
Changes in a nation’s monetary and/or
fiscal policies affects its exchange
rates and its’ trade by affecting the
interest rates, price level, etc.
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