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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')
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.

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