Open Economy: Real Interest Rate, Exchange Rate, and Trade Balance
Imports
Goods and services produced abroad and sold domestically
Exports
Goods and services produced domestically and sold abroad
Saving
Income not spent on consumption or taxes
Appreciation
Increase in the value of a currency
Depreciation
Decrease in the value of a currency
Capital flight
Large and sudden reduction in the demand for assets located in a country
Import quota
Limit on the quantity of imports
Net capital outflow (NCO)
Purchase of foreign assets by domestic residents minus purchase of domestic assets by foreigners
Investment
Purchase of new capital goods
Real exchange rate
Rate at which goods and services of one country can be traded for goods and services of another country
Nominal exchange rate
Rate at which one currency can be traded for another
Market for loanable funds
Supply of loanable funds from national saving and demand for loanable funds from domestic investment and net capital outflow
Tariff
Tax on imported goods
Purchasing-power parity
Theory that a unit of currency should have the same purchasing power in all countries
Market for foreign-currency exchange
Trade of one currency for another
Net exports (NX)
Value of exports minus value of imports
Trade surplus
When exports exceed imports
Budget deficit
When government spending exceeds government revenue
Trade deficit
When imports exceed exports