IB Economics HL - The Global Economy Definitions

the exchange of goods and services between countries

the theory that a country should specialize in goods that it can produce at the lowest opportunity cost

when a country is able to produce a product using fewer factors of production than another country

when a country seeks to limit free trade in order to protect themselves.

a tax on imported goods and services allowing more inefficient domestic firms to increase their production and market share

a physical limit on imports usually set below the free market level

the price of one currency in terms of another

where the forces of demand and supply determine the rate at which one currency is exchanged for another

where the country’s Central Bank intervenes in the currency market to fix the exchange rate in relation to another currency

where the exchange rate is allowed to fluctuate within a specific band around a desired valuation

a record of all the financial transactions that occur between a country and the rest of the world

all transactions related to goods and services along with payments related to the transfer of income

visible exports and imports

invisible exports and imports

a record of small capital flows between countries

a record of all transactions associated with changes of ownership of the countries foreign financial assets and liabilities

in order to increase revenue firms should lower prices for products that are price elastic in demand

if the combined elasticity of exports divided by imports is less than 1 a depreciation (fall in price) will actually worsen the current account balance

the explanation that it takes time for firms and consumers to respond to a change in price

occurs as countries reduce trading barriers and become more interdependent

a group of countries who come together and agree to reduce or eliminate barriers to trade that exist between them

a trading bloc in which countries agree to abolish trade restrictions between members but maintain their own restrictions with other countries

an agreement between countries in which all goods and services produced by a member are traded tariff free and countries agree on common tariff rates on imports from all external countries

an agreement between countries in which all goods and services produced by a member are traded tariff free and all factors of production flow freely between member countries

all goods and services are traded tariff free and all factors of production flow freely but a common Central Bank and currency are established

the value of all goods and services produced in an economy in one year and adjusted for inflation

the income earned by citizens operating outside the country + the GDP

a conversion factor that shows the number of units of a country’s currency that are required to buy a product in the local economy

the functions of government including the legal system, law enforcement, banking, tax structures and property rights

aims to increase domestic production and output by moving consumers away from imports by using tariffs or quotas

aims to increase the level of exports through subsidies or connecting local firms with international buyers

when a country is able to increase the number of products that it offers for export

a focus on meeting specific social objectives

strategies put in place by governments to correct the failings of the free market and promote development

goods which are beneficial to society but are under-provided in the market

when investment by foreign firms results in more than a 10% share of ownership of domestic firms

government aid that promotes the economic development and welfare of developing countries.

aid from a development agency that promotes the economic development and welfare of developing countries.

measures which aim to reduce government intervention and free up private-sector economic activity so that national output increases