Econ 13 Vocab
Terms
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- Stable foreign exchange market
- The condition in a foreign exchange market where a disturbance from the equilibrium exchange rate gives rise to automatic forces that push the exchange rate back toward the equilibrium rate.
- Unstable foreign exchange market
- the condition in a foreign exchange market where a disturbance from equilibrium pushes the exchange rate farther away from the equilibrium.
- Marshall-Lerner condition
- Indicates that the foreign exchange market is stable when the sum of the price elasticities of the DEMANDS for imports and exports is larter than 1.
- J-Curve effect
- The deterioration before a net imrovement in a country's trade balance resulting for a depreciation or devaluation.
- Pass-through
- The proportion of an exchange rate change that is reflected in export and import price changes.
- Gold Standard
- the international monetary system operating from 1880-1914 under which gold was the only international reserve, exchange rates fluctuated only with the gold points, and BOPs adjustment was described by the priice-specie-flow mechanism.
- Gold export point
- The mint parity plus the cost of shipping an amount of gold equal to one unit of the foreign currency between two nations.
- Gold import point
- The mint parity minus the cost of shipping an amount of gold equal to one unit of the foreign currency between the two nations.
- Price-specie-flow mechanism
- the automatic adjustment mechanism under the gold standard. The deficit nation loses gold and experiences a reduction in its money supply. This reduces domestic prices, which stimulates the nation's exports and discourages its imports until eliminated. Surplus corrected by opposite process.
- Equilibrium level of income (Ye)
- The level of income at which desired or planned expenditures equal the value of output, and desired saving equals desired investment. Closed economy: Y=C+S.
- multiplier (k)
- The ratio of the change in income to the change in investment; in a closed economy without government, k = 1/Marginal Propensity to Save.
- Foreign Trade multiplier (k')
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The ratio of the change in income to the change in exports and/or investment. k' = 1/(MPS+MPM)
Marginal Propensity to Save
Marginal Propensity to Import - Absorption approach
- Examines and integrates the effect of induced income changes in the process of correcting a BOPs disequilibrium by a change in the exchange rate.
- Synthesis of automatic adjustments
- The attempt the automatic price, income, and monetary adjustments to correct BOPs disequillibria.
- Internal balance
- The objective of full employment with price stability; usually a nation's most important economic objective.
- External balance
- The objective of equilibrium in a nation's balance of payments.
- Expenditure-Changing policies
- Fiscal and monetary policies directed at changing the level of aggregate demand of the nation.