No Bull Economics Lessons

Macroeconomics & Microeconomics Concepts You Must Know

Unit 6: Top 10 International Economic Concepts to Know (Macro)


Unit 6: Top 10 things you need to know about international trade, balance of payments, and foreign exchange. This is geared toward college-level principles of macro and micro courses and students enrolled in AP Economics. Top 10 concepts in this video: #1. Current Account vs. Capital (Financial) Account, #2. Trade Deficit in Short Run, #3. Benefits of Trade, #4. Barriers to Trade, #5. Causes of Appreciation, #6. Causes of Depreciation, #7. Foreign Exchange Graph, #8. Foreign Exchange – Increased Interest Rates, #9. Foreign Exchange – Decrease in Aggregate Income, and #10. Interest Rates Summarized.

Unit 6: International Trade & Finance Review Sheet

  • People and nations trade to improve their standard of living (HDG #5) therefore both parties must gain from the trade.
  • Voluntary trade promotes economic progress because people specialize in what they do best.
  • Comparative advantage explains why there are mutual gains from specialization and trade.  The nation with the lower opportunity cost for producing a product has the comparative advantage.
  • A nation has the absolute advantage if it can produce more of a good using the same amount of resources.
  • Tariffs and quotas are trade barriers that limit the potential gains from trade.  They generally protect domestic sellers at the expense of domestic buyers and reduce efficiency in the allocation of scarce resources.
  • The balance of payments is a broader measure of international transactions.  Considers all international account, capital account, and official reserves.
  • To trade nations must exchange currencies - exchange rate is the price of one currency in terms of another, and set up by supply and demand.
  • Appreciation is an increase in the value of a nation's currency in foreign exchange markets - tends to reduce exports and increase imports.
  • Depreciation is a decrease in the value of a nation's currency - tends to increase exports and decrease imports.
  • Monetary and fiscal policies can affect exchange rates and international balance of payments. 

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