Macroeconomics: Ch. 10 Trade Balance
If the Fed raises the interest, the U.S dollar will ________
appreciate
What are four strategies to reduce trade imbalance?
- Increasing the level of savings to reduce the trade deficit - Change level of investments - Increase taxes - Decrease government spending
Current Account Balance
A broad measure of the balance of trade that includes trade in goods and services, as well as international flows of income and foreign aid
Stock Variable
A variable that measures something at a particular point in time, such as the amount of money you have with you right now; a country's debt
Flow variable
A variable that measures something over an interval of time, such as your income per week
Injections of Income
Additions to the circular flow of income that are not derived from current income; G + I + X
Closed Economy
An economy that has no interactions in trade or finance with other countries; Y= C+I+G
Open Economy
An economy that interacts freely with other economies around the world; Y = C + I + G + (X - M) or X-M = Y-C-I-G
Intertemporal Trade
Countries trading production for consumption at different points in time
Risk
Currency appreciation or depreciation will affect the rate of return
Rate of return
Difference between annual interest rate in foreign and the depreciation of foreign currency
Consuming more than producing is having trade surplus.
False
Deficits must be paid by producing less than consuming.
False
Sum of outlaws should never equal sum inflows
False
Twin Deficits
Fiscal Deficit + Savings Deficit = Trade Deficit
Leakage of income
Forms of income that are withdrawn from the circular flow of income; S + T + M
Unilateral Transfers
Payments that government, private charities, or individuals makes in which they send money abroad without receiving any direct good or service
Interest Arbitrage
Relationship between interest rates and the exchange rate in the short run
Trade Deficit
The amount by which the cost of a country's imports exceeds the value of its exports. X < M or (X - M) < 0
Trade Surplus
The amount by which the value of a country's exports exceeds the cost of its imports. X > M or (X -M) > 0
Merchandise trade balance
The balance of trade looking only at goods
Balance of Trade
The gap, if any, between a nation's exports and imports
A country's trade surplus is not really reflecting anything more profound than a mismatch between domestic production and domestic consumption.
True
Depreciation of money causes U.S. exports to increase and U.S. imports to decrease
True
If (S-I) < (G-T) then (X-M) is negative
True
If (S-I) > (G-T) then (X-M) is positive
True
Producing more output than its consuming is having trade surplus.
True
If the Fed raises the interest, exports will ________
decrease
If the Fed raised the interest, imports will ________
increase
Trade deficit is:
the process of importing present consumption and exporting future consumption
If the Fed raised the interest, the trade balance will _______
worsen