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Macro 240 CSCC Exam 4
world trade, currency exchange
34
Economics
Undergraduate 2
06/04/2008

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Term
Absolute Advantage
Definition
A country that can more efficiently produce greater quantity of goods.
Term
comparative advantage
Definition
Compares opportunity costs to determine who will trade with who, and for what price.
Term
terms of trade
Definition
The amount of an exported good that must be given up to obtain one unit of an imported good.
Term
export supply curve
Definition
Upward sloping line that shows how much surplus a country will have available to trade at diffrent price points.
Term
import demand curve
Definition
Downward sloping line that displays how much shortage a country will need filled at various prices
Term
Ricardian Model
Definition
Productivity theory of comparative advantage. Usually a result of technology gaps between countries.
Term
Heckscher-Olin model
Definition
Factor Abundance Theory of Comparative Advantage. Exerts that relative abundance of factors of production.
Term
Intraindustry trade
Definition
trade between nations for goods in the same industry
explainded through consumer prfrences

The US imports Stella Artois (delicious) and exports Budwiser (FOUL)
Term
Prefrences Theory of Comparative Advantage
Definition
Focuses on demand side economics of trade. Quality or consumer tastes may lead to intraidustry trade.
Term
Human Skills Theory of Production
Definition
Emphasizes the differences across countries in skilled and unskilled labor.
Term
Product Life Cycle Theory of Comparative Advantage
Definition
Explains how comparative advantage can shift from one country to another over time. The US used to make most of the worlds colored TV's but after some time asia learned how to make TV's too. Eventually Asian cheap labor won out.
Term
Commercial Policy
Definition
Government policy aimed at influencing international trade flows. Usually enacted in the name of protecting domestic producers.
Term
Level Playing Field
Definition
Commercial policy aimed at creating "Fair Trade". Often times argued in response to cheap labor in foreign countries. Also is used as a means of reciprocity to foreign barriers to trade.
Term
Strategic Trade Policy
Definition
The use of trade restrictions or subsidies to allow domestic firms with decreasing costs to gain a greater share of the world market. Increasing-return to scale industries.
Term
Infant Industry policy
Definition
Aimed at helping a new industry in a country to be competitive with foreign competition.
Term
Government Revenue Creation
Definition
Countries claim that they get a significant source of funds from taxing imports. Tarrifs
Term
National Defense
Definition
Government subsidizes industries that may be needed in time of war. Such as shipbuilding.

Must be weighed against the ability to buy and store rations of the goods needed.
Term
Smoot-Hawley Tariff
Definition
Act signed by Hoover, that place thousands of tariffs on imports in the name of domestic protection. Other countries retaliated and imposed tariffs, grinding international trade to a halt.
Term
quantity quota
Definition
limiting the importation of goods based on absolute number of goods.
Term
value quota
Definition
limiting the number of goods that can be imported in terms of monetary value.
Term
Government Procurement
Definition
Barrier to trade that requires the government to go with domestic producers over foreign producer regardless of price.
Term
fundamental disequillibrum
Definition
a permanent change in supply or demand of a currency in a fixed exchange rate.
Term
Gold exchange standard
Definition
based all currencies on gold
Term
world bank
Definition
created to help finance economic development in poor countries. Raises funds through bonds.
Term
International Monetary Fund
Definition
created to supervise exchange-rate practices of member countries and to encourage free convertibility of any national money into the monies of other countries. Also lends money to countries that are experiencing problems meeting international debt payments.
Term
Foreign exchange market intervention
Definition
government buying and selling of currencies to achieve a target exchange rate
Term
Crawling Pegs
Definition
The Exchange rate is adjusted periodically by small amounts at a fixed, pre-announced rate or in response to certain indicatiors (such as inflation differentials against major trading partners)
Term
Crawling bands
Definition
The exchange rate is maintained witin certain fluctuation margins around a central rate that is periodically adjusted at a fixed pre-announced rate or in response to certain indicators
Term
Managed Floating
Definition
The monetary authority (usually a central bank) influences the exchange rate through active foreign exchange market intervention with no pre-announced path for the exchange rate.
Term
Independent Floating
Definition
The exchange rate is market determined and any inervention is aimed at moderating fluctuations rather than at determining the level of the exchange rate
Term
No-Separate Legal tender
Definition
Either anouter country's currency circulates as the legal tender or the country belongs to a monetary union where the legal tender is shared by the members (euro)
Term
Currency board
Definition
A fixed exchange rateis established by a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate. new issues of domestic currency are typically backed in some fixed ration (like 1 to 1) by additional holdings of the key foreign currency
Term
Fixed Peg
Definition
The exchange rate is fixed against a major currency or some basket of currencies. Active intervention may be required to maintain the target pegged rate.
Term
Horizontal Bands
Definition
The exchange rate fluctuates around a fixed central target rate Such target zones allow for a moderate amount of exchange-rate fluctuation while tying the currency to the target central state
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