| Term | Definition |
|---|---|
| balance of payments | A comprehensive accounting record of all economic transactions between a country and the rest of the world, including the current account and capital and financial account. |
| balance of trade | The difference between a country's exports and imports; the net exports component of the current account. |
| capital and financial account | The component of the balance of payments that records transactions involving the purchase and sale of assets, including financial investments and capital transfers between a country and the rest of the world. |
| credit | A transaction in the balance of payments that causes money to flow into a country. |
| current account | The component of the balance of payments that records transactions in goods, services, income, and current transfers between a country and the rest of the world. |
| current account deficit | A situation where a country's current account debits exceed its credits, indicating more money flowing out than in from current account transactions. |
| current account surplus | A situation where a country's current account credits exceed its debits, indicating more money flowing in than out from current account transactions. |
| debit | A transaction in the balance of payments that causes money to flow out of a country. |
| financial capital inflow | Money flowing into a country from foreign investment and asset purchases, recorded as a surplus in the capital and financial account. |
| financial capital outflow | Money flowing out of a country for foreign investment and asset purchases, recorded as a deficit in the capital and financial account. |
| net exports | The difference between a country's total exports and total imports; a component of aggregate demand. |
| net income from abroad | Income earned by residents from foreign sources, recorded in the current account. |
| net unilateral transfers | One-way transfers of money or goods between countries with no expectation of repayment, recorded in the current account. |
| Term | Definition |
|---|---|
| currency | Money issued by a country or economic union that serves as a medium of exchange for goods and services. |
| currency appreciation | An increase in the value of a country's currency relative to other currencies, making exports more expensive and imports cheaper. |
| currency depreciation | A decrease in the value of a country's currency relative to other currencies, making exports cheaper and imports more expensive. |
| currency valuation | The process by which the relative worth or price of one currency is determined compared to other currencies. |
| exchange rate | The price of one currency expressed in terms of another currency in the foreign exchange market. |
| foreign exchange market | The global market where currencies are traded and exchange rates are determined by the supply and demand for different currencies. |
| Term | Definition |
|---|---|
| demand for currency | The quantity of a currency that buyers are willing and able to purchase at various exchange rates, arising from demand for a country's goods, services, and financial assets. |
| disequilibrium | A market condition in which the quantity supplied does not equal the quantity demanded, causing imbalances that create surpluses or shortages. |
| equilibrium | A market condition in which the quantity supplied equals the quantity demanded at a particular price, with no tendency for change. |
| equilibrium exchange rate | The exchange rate at which the quantity of currency demanded equals the quantity supplied, determined by shifts in currency demand and supply. |
| exchange rate | The price of one currency expressed in terms of another currency in the foreign exchange market. |
| foreign exchange market | The global market where currencies are traded and exchange rates are determined by the supply and demand for different currencies. |
| quantity demanded | The amount of a good or service that consumers are willing and able to purchase at a specific price. |
| quantity demanded of a currency | The amount of a currency demanded at a specific exchange rate, which has an inverse relationship with the exchange rate. |
| quantity supplied | The amount of a good or service that producers are willing and able to offer for sale at a given price. |
| quantity supplied of a currency | The amount of a currency supplied at a specific exchange rate, which has a positive relationship with the exchange rate. |
| supply of currency | The quantity of a currency that sellers are willing and able to offer at various exchange rates, arising from making payments in other currencies. |
| surpluses | A situation in the money market where the quantity of money supplied exceeds the quantity of money demanded at a given nominal interest rate. |
| Term | Definition |
|---|---|
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| demand | The quantity of a good or service that consumers are willing and able to buy at various price levels. |
| demand for currency | The quantity of a currency that buyers are willing and able to purchase at various exchange rates, arising from demand for a country's goods, services, and financial assets. |
| equilibrium exchange rate | The exchange rate at which the quantity of currency demanded equals the quantity supplied, determined by shifts in currency demand and supply. |
| exchange rate | The price of one currency expressed in terms of another currency in the foreign exchange market. |
| fiscal policy | Government spending and taxation decisions that influence aggregate demand, real output, price level, and exchange rates. |
| flexible exchange market | A foreign exchange market where the equilibrium exchange rate is determined freely by the interaction of supply and demand without government intervention. |
| foreign exchange market | The global market where currencies are traded and exchange rates are determined by the supply and demand for different currencies. |
| interest rates | The cost of borrowing money, influenced by monetary policy and affecting exchange rates through changes in currency demand. |
| monetary policy | Central bank actions that influence the money supply, interest rates, aggregate demand, real output, price level, and exchange rates. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| quotas | Limits on the quantity of imported goods that affect the supply of foreign currency. |
| real output | The total production of goods and services in an economy adjusted for inflation, measured in constant dollars. |
| supply | The quantity of a good or service that producers are willing and able to offer for sale at various price levels. |
| supply of currency | The quantity of a currency that sellers are willing and able to offer at various exchange rates, arising from making payments in other currencies. |
| tariffs | Taxes imposed on imported goods that affect the supply of foreign currency. |
| Term | Definition |
|---|---|
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| currency appreciation | An increase in the value of a country's currency relative to other currencies, making exports more expensive and imports cheaper. |
| currency depreciation | A decrease in the value of a country's currency relative to other currencies, making exports cheaper and imports more expensive. |
| exchange rate | The price of one currency expressed in terms of another currency in the foreign exchange market. |
| exports | Goods and services produced domestically and sold to foreign countries. |
| flexible exchange market | A foreign exchange market where the equilibrium exchange rate is determined freely by the interaction of supply and demand without government intervention. |
| imports | Goods and services produced in foreign countries and purchased domestically. |
| net exports | The difference between a country's total exports and total imports; a component of aggregate demand. |
| Term | Definition |
|---|---|
| domestic assets | Financial investments and property located within a country's borders. |
| financial capital flows | The movement of money and investment funds across countries in response to differences in returns and interest rates. |
| foreign assets | Financial investments and property located outside a country's borders. |
| foreign exchange market | The global market where currencies are traded and exchange rates are determined by the supply and demand for different currencies. |
| loanable funds market | The market where savers supply funds available for borrowing and borrowers demand funds, with the real interest rate serving as the price. |
| net capital inflow | The net flow of foreign investment into a country, representing the difference between foreign investment in the domestic economy and domestic investment abroad. |
| open economy | An economy that engages in international trade and allows the free flow of goods, services, and financial capital across borders. |
| real interest rate | The interest rate adjusted for inflation, reflecting the true purchasing power gained or lost from lending or borrowing. |