AP Macroeconomics comparative advantage, balance of payments, and foreign exchange market concepts.
36 cards · basic cards · AI-written, checked twice. Edit anything.
- What is comparative advantage?
- The ability of one party to produce a good at a lower opportunity cost than another party.
- What is absolute advantage?
- The ability to produce more of a good with the same amount of resources than another party.
- Why do countries specialize in production?
- To take advantage of comparative advantage, allowing them to trade for goods they cannot produce as efficiently.
- What are gains from trade?
- The increases in total output and consumption that result when countries specialize according to comparative advantage.
- What is autarky?
- A situation where a country produces and consumes only what it can make itself, with no international trade.
- What is the terms of trade?
- The ratio at which one country trades its exports for the imports of another country, or the rate of exchange between two goods in trade.
- What is the balance of payments?
- A record of all transactions between a country and the rest of the world, including goods, services, and financial assets.
- What does the current account measure?
- The flow of goods, services, income, and transfers between a country and the rest of the world.
- What does the capital account measure?
- The transfer of assets and financial claims (capital flows) between a country and other countries.
- What is the financial account?
- The account that records investment income and changes in ownership of financial assets between countries.
- What must be true about the balance of payments as a whole?
- The sum of the current account and the capital/financial account must equal zero (accounting identity).
- What is the foreign exchange market?
- The global market where currencies are traded, determining exchange rates between different countries' currencies.
- What is an exchange rate?
- The price of one currency in terms of another currency, or how much of one currency you must give to get another.
- What does currency appreciation mean?
- An increase in the value of a currency relative to other currencies, making exports more expensive and imports cheaper.
- What does currency depreciation mean?
- A decrease in the value of a currency relative to other currencies, making exports cheaper and imports more expensive.