Unit 5 Organizing Principles
This unit expands on the topics of international trade and net exports. First you will learn about the balance of payments which is a summary of a country's transactions with other countries. The primary components of the balance of payments are the current account and the capital (financial) account. Make sure that you can determine if a specific transaction is counted in the current account or the capital (financial) account.
The most important concepts in this unit are the foreign exchange markets and exchange rates. Make sure that you can draw the demand and supply for a country's currency and show the effects of a specific change. Feel very comfortable identifying if the international value of a currency will appreciate or depreciate when there is a change in price level, income, or real interest rate. Also make sure that you can explain how appreciation and depreciation will affect exports and imports. This is a short unit, but very important!