Economics Key Terms: Trade, Policies, and Market Systems

Balance of Trade

The difference between a country's exports and imports.

Business Cycle

The repeating pattern of economic expansions and recessions over time.

Command Economy

An economic system where the government makes all major economic decisions.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer.

Contractionary Policy

Government actions that reduce spending to slow inflation.

Consumer Price Index (CPI)

A measure of the average change in prices paid by consumers over time.

Cyclical Unemployment

Unemployment caused by downturns in the business cycle.

Demand

The amount of a good or service buyers are willing and able to purchase at various prices.

Embargo

A complete ban on trade with a specific country.

Equilibrium Price

The price at which supply equals demand.

Expansionary Policy

Government actions used to increase spending and reduce unemployment.

Globalization

The growing interconnection of countries through trade, technology, and culture.

Inflation

A general increase in prices over time.

Fiscal Policy

Government decisions about taxes and spending to influence the economy.

Frictional Unemployment

Short-term unemployment when people are between jobs.

Keynesian Economics

The idea that government spending can stabilize the economy.

Market Economy

An economy where supply and demand determine what is produced.

Mixed Economy

An economy with both market forces and government involvement.

Monetary Policy

Central bank actions to control the money supply and interest rates.

Nominal GDP

GDP measured using current prices, not adjusted for inflation.

Opportunity Cost

The value of the next best alternative given up when making a choice.

Per Capita GDP

A country's GDP divided by its population.

Production Possibility Curve

A graph showing maximum possible production combinations of two goods.

Real GDP

GDP adjusted for inflation.

Recession

A period of significant economic decline lasting months or more.

Sanction

A penalty or restriction on trade used to influence a country's behavior.

Scarcity

The basic economic problem of limited resources and unlimited wants.

Socialist Economy

An economy where the government owns major industries and distributes resources more equally.

Structural Unemployment

Unemployment caused by mismatched skills or technological changes.

Supply

The amount of a good or service producers are willing and able to sell at various prices.

Supply Side Economics

The idea that lower taxes and fewer regulations increase production and economic growth.

Tariff

A tax on imported goods.

Traditional Economy

An economy based on customs, traditions, and bartering.