All Flashcards
How does increased tourism affect the FOREX market?
Increased tourism increases demand for a country's currency, leading to appreciation.
How do higher incomes affect the FOREX market?
Higher incomes can lead to increased demand for imports and foreign currency, potentially causing depreciation.
How does higher inflation affect a country's currency?
Higher inflation can decrease demand for a country's currency, leading to depreciation.
How do higher interest rates affect capital flows?
Higher interest rates attract financial capital, increasing demand for a country's currency and causing appreciation.
How does a weaker currency affect GDP?
A weaker currency (depreciation) can lead to increased exports, boosting GDP.
How does a stronger currency affect GDP?
A stronger currency (appreciation) can lead to decreased exports, lowering GDP.
How do differences in real interest rates affect capital flows?
Differences in real interest rates drive capital flows. Higher rates attract financial capital.
If a country has a current account deficit, what must be true about its capital account?
The country must have a capital account surplus.
How does increased government spending affect exchange rates?
Increased government spending (fiscal policy) can influence exchange rates depending on its effects on interest rates and inflation.
How do central bank actions affect exchange rates?
Central bank actions like interest rate adjustments (monetary policy) affect exchange rates by influencing capital flows.
What is the impact of expansionary monetary policy on exchange rates?
Expansionary monetary policy (increasing the money supply) typically leads to currency depreciation.
What is the impact of contractionary monetary policy on exchange rates?
Contractionary monetary policy (decreasing the money supply) typically leads to currency appreciation.
How can fiscal policies influence exchange rates?
Fiscal policies (government spending and taxation) can influence exchange rates depending on their effects on interest rates and inflation.
What is the effect of a tariff on net exports?
A tariff typically leads to a decrease in imports and an increase in net exports, but can also lead to retaliation.
How does a quota affect the domestic price of imported goods?
A quota typically increases the domestic price of imported goods.
What is the impact of a subsidy on exports?
A subsidy on exports increases exports, leading to an increase in domestic production.
How does a decrease in government spending affect aggregate demand?
A decrease in government spending decreases aggregate demand, potentially leading to lower GDP.
What is the impact of increased taxes on consumer spending?
Increased taxes decrease disposable income, leading to a decrease in consumer spending.
How does an increase in interest rates affect investment?
An increase in interest rates increases the cost of borrowing, leading to a decrease in investment.
What is the impact of a currency depreciation on a country's trade balance?
A currency depreciation makes exports cheaper and imports more expensive, improving the trade balance in the long run.
What is the Balance of Payments?
Tracks all transactions between a country and the rest of the world.
What is the Current Account?
Part of the Balance of Payments that includes net exports, net investment income, and net transfers.
What are Net Exports (NX)?
Exports minus imports of goods and services; the trade balance.
What is the Capital Account?
Part of the Balance of Payments that includes purchases and sales of financial and real assets.
What are Exchange Rates?
The price of one currency in terms of another.
What is Appreciation (currency)?
When a currency's value increases relative to another currency.
What is Depreciation (currency)?
When a currency's value decreases relative to another currency.
What is the FOREX market?
The foreign exchange market where currencies are traded.
What is Net Investment Income?
Earnings from investments abroad minus payments to foreign investors.
What are Net Transfers?
Unilateral transfers like foreign aid, grants, and remittances.