Econ Test
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| absolute advantage | The advantage in the production of a product enjoyed by one country over another when it uses fewer resources to produce that product than the other country does.
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| aggregate behavior | The behavior of all households and firms together.
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| aggregate demand | the total demand for goods and services in an economy.
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| aggregate demand (AD) curve | A curve that shows the negative relationship between aggregate output (income) and the price level. Each point on the AD curve is a point at which both the goods market and the money market are in equilibrium.
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| aggregate income | the total income received by all factors of production in a given period.
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| aggregate output (income) (Y) | a combined term used to remind you of the exact equality between aggregate output and aggregate income.
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| Balance of Payments | the record of a country's transactions in goods, services, and assets with the rest of the world; also the record of a country's sources(supply) and uses (demand) of foreign exchange.
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| Balance of Trade | A country's exports of goods and services minus its imports of goods and services.
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| Capital | Those goods produced by the economic system that are used as inputs to produce other goods and services in the future.
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| Capital-intensive technology | A production technique that uses a large amount of capital relative to labor.
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| Command economy | an economy in which a central government either directly or indirectly sets output targets, incomes, and prices.
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| Comparative Advantage | A country enjoys a comparative advantage in the production of a good if the production of that good has a lower opportunity cost than it would have in produced in another country.
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| Consumer Price Index (CPI) | A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the "market basket" purchased monthly by the typical urban consumer.
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| Consumer Surplus | The difference between the maximum amount a person is willing to pay for a good and its current market price.
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| Recession Contraction or Slump | The period in the business cycle from a peak down to a trough during which output and employment fall.
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| Cyclical unemployment | the increase in unemployment that occurs during recessions and depressions.
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| Deflation | A decrease in the overall price level.
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| Demand-pull inflation | Inflation that is initiated by an increase aggregate demand.
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| Depression | A prolonged and deep recession. The precise definitions of prolonged and deep are debatable.
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| Diamond/water paradox | A paradox stating that 1.) the things with the greatest value in use frequently have little or no value in exchange and 2.) the things with the greatest value in exchange frequently have little or no value in use.
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| Economic Growth | An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources.
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| Economics | The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.
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| Efficiency | In economics, allocative efficiency. An efficient economy is one that produces what people want at the least possible cost.
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| Efficient market | A Market in which profit opportunities are eliminated almost instantaneously.
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| Elastic Demand | Ademand relationship in which the percentage change in quantity demanded is larger in absolute value than the percentage change in price (a demand elasticity with an absolute value greater than 1).
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| elasticity | A general concept used to quantify the response in one variable when another variable changes.
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| employed | Any person 16 years old or older (1) who works for pay, either for someone else or in his or her own business for 1 or more hours per week, (2) who works without pay for 15 or more hours per week in a family enterprise
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| Equilibrium | Occurs when there is no tendency for change. In the macroeconomic good market, equlibrium occurs when planned aggregate expenditure is equal to aggregate output.
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| Excess demand or shortage | The condition that exists when quantity demanded exceeds quantity supplied at the current price
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| expansion or boom | The period in the business cycle from a trough up to a peak, during which output and employment rise.
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| fiscal policy | Government prolicies concerning taxes and expenditures (spending).
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| fricitional unemployment | The portion of unemployment that is due to the normal working of the labor market; used to denote short-run job/skill matching problems.
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| globalization | the process of increasing interdependence among countries and their citizens.
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| Great Depression | The period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s.
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| Gross Domestic Product (GDP) | The total market value of all final goods and services produced within a given period by factors of production located within a country.
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| Gross Investment | The total value of all newly produced capital goods (plant, equipmet, housing, and inventory) produced in a given period.
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| Gross National Income (GNI) | GNP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation.
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| Gross National Product (GNP) | The total market value of all final goodsand services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced.
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| Hyperinflation | A period of very rapid increases in the overall price level
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| Immigration Act of 1990 | Increased the number of legal immigrants allowed into the United States each year by 150,000.
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| Immigration Reform and Control Act (1986) | Granted amnesty to about 3 million illegal aliens and imposed a strong set of employer sanctions designed to slow the flow of immigrants into the United States.
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| Inflation | An increase in the overall price level.
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| Interest | The fee that borrowers pay to lenders for the use of their funds.
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| Law of Demand | The negative relationship between price and quantit demanded: As price rises, quantity demanded decreases. As price falls, quantity demanded increases.
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| Law of supply | The positive relationship between price and quantity of a good supplied: an increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.
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| Macroeonomics | The branch of economics that examines the economic behavior of aggregates - income, employment, output, and so on - on a national scale.
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| Marginal Cost (MC) | The increase in total cost that results from producing one more unit of output. Marginal costs reflect changes in variable costs.
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| Marginal Private Cost (MPC) | The amount that consumer pays to consume an additional unit of a particular good.
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| Marginal Product of Labor (MPL) | The additional output produced by one additional unit of labor.
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| Marginal Propensity to Consume (MPC) | That pfraction of a change in income that is consumed, or spent.
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| Marginal Propensity to Import (MPM) | The change in imports caused by a $1 change in income.
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| Marginal Propensity to Save (MPS) | That fraction of a change in income that is saved.
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| Marginal Rate of Transformation (MRT) | The slope of a production possibility frontier (ppf).
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| Marginal Revenue (MR) | The additional revenue that a firm takes in when it increases output by one additional unit. In perfect competition, P = MR.
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| Marginal Social Cost (MSC) | The total cost to society of producing an additional unit of a good or service. MSC is equal to the sum of the marginal costs of producing the product and the correctly measured damage costs involved in the process of production.
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| Profit | The difference between revenues and costs.
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| Recession | Roughly, a period in which real GDP declins for at least two consecutive quarters. marked by falling output and risisng unemployment.
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| Rent-Seeking Behavior | Actions taken by households or firms to preserve positive profits.
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| Saving (S) | The part of its income that a household does not consume in a given period. Distinguished from savings, which is the current stock of accumulated saving.
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| Stagflation | Occurs when the overall price level rises rapidly (inflation) during periods of recession or high and persistent unemployment (stagnation).
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| Structural Unemployment | The portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.
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| Sunk Costs | Costs that cannot be avoided, regardless of what is doen in the future, because they have already been incurred.
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| Trade Surplus | The situation when a country exports more than it imports.
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| Unemployed | A person 16 years old or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks.
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| Marginalism | The process of analyzing the additional bor incremental costs or benefits arising from a choice or decision.
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| Market Demand | The sum of all the quantites of a good or service demanded per period by all the households buying in the market for that good or service.
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| Market Supply | The sum of all that is supplied each period by all producers of a single product.
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| Microeconomics | The branch of economics that examines the functioning of a individual industries and the behavior of individual decision-making units- that is, business firms and households.
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| Minimum wage | A price floor set under the price of labor.
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| Monetary policy | The behavior of the Federal Reserve concerning the nation's money supply.
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| Multiplier | The ratio of the change in the equilibrium level of output to a change in some autonomous variable.
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| North American Free Trade Agreement (NAFTA) | An agreement signed by the United States, Mexico, and Canada in which the three countries agreed to establish all North America as a free-trade zone.
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| Opportunity Cost | The best alternative that we forgo, or give, up when we make a choice or a decision.
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| Perfect Competition | An inductry structure in which there are many firms, each small relative to the industry and producing virtually identical products, and in which no firm is large enough to ahve any control over prices.
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| Perfectly Inelastic Demand | Demand in which quantity demanded does not respond at all to a change in price.
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| Poverty Line | The officially established income level that distinguishes the porrt from the nonpoor. It is set a three times the cost of the Department of Agriculture's minimum food budget.
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| Price Ceiling | A maximum price that sellers may charge for a good, usually set by government.
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| Producer Prince Indexed (PPIs) | Measures of prices that producers receive for products at all stages in the production process.
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| scarce | Limited
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| variable | A measure that can change from time to time or from observation to observation
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| comsumer goods | Goods produced for present consumption.
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| investment | New capital additions to a firm's capital stock. Although capital is measuered at a given point in time (a stock), investment is measured over a period of time (a flow). The flow of investment increases the capital stock.
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| Laissez-faire economy | Literally from the frenche: Allow [them] to do." An economy in whihc individual people and firms pursue their own self-interests without any central direction or regulation.
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| Market | The institution trough which buyers and sellers interact and engage in exchange.
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| Production Possibility Frontier | A graph that shows all the combinations of goods nad services that can be produced if all of society's resources are used efficiently.
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| Production | The process that transforms scarce resources into useful goods and services.
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| Factors of production | The inputs into the production process. Land, Labor, and Capital are the threekey factors of produciton.
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| Theory of comparative advantage | Ricardo's Theory that specialization and free trade will benefit all trading partners (real wages will rise), even those that may be absolutely less efficient producers.
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| Demand curve | A graph illustrating how much of a given product a household would be willing to buy at different prices.
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| excess supply or surplus | The condition that exists when quantity supplied exceeds quantity demanded at the current price.
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| firm | An organization that fransforms resources (inputs) into products (outputs) Firms are the primary producing units in a market economy.
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| Households | The Consuming units in an economy.
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| Income | The sum of all a household's wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure.
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| Inferior goods | Goods for which demand tends to fall when incomes rises.
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| Movement along a demand curve | The change in quantity demanded brought about by a change in price.
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| Movement along a supply curve | The change in quantity supplied brough about by a change in price.
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| Perfect Substitutes | Identical products.
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| Quantity Demanded | The amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price.
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| Quantity Supplied | The amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.
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| Shift of a demand curve | The change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions
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| Shift of a supply curve | The change that takes place in a supply curve corresponding to a new relationship between quantity suppied of a good and the price of that good. The shift is brought about by a change in the original condiditosn
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| Substitutes | Goods that can serve as a replacements for one oanother; when the price of one increases, demand for the other goes up.
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| Supply curve | A graph illustrating how much of a product a firm will sell at different prices.
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| Business cycle | The cycle of short-term ups and downs in the economy.
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| unemployment rate | The ratio of the number of people unemployed to the total number of people in the labor force.
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| Current dollars | The current prices hat one pays for goods and services.
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| Depreciation | The Amount by which an asset's value falls in a given period.
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| Durable goods | Goods that last a relatively long time, such as cars and household appliances.
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| Expenditure approach | A method of computing GDP that measures the amount spent on all final goods during a given period.
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| Final Goods and Services | Goods and Services produced for final use.
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| Income Approach | A Method of computing GDP that measures the income - wages, rents, interest, and profits -received by all factors of production in producing final goods.
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| National Income | The total income earned by the factors of production owned by a country's citizens
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| Net exports (EX-IM) | The difference between exports (sales to foreigners of U.S.-produced goods and services) and imports (U.S. purchases of goods and services from abroad). The figure can be positive or negative.
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| Nominal GDP | Gross Domestic Product measured in current dollars.
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| Nondurable goods | Goods that used up fairly quickly, such as food and clothing.
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| Personal consumption expenditures (C) | A major component of GDP: expenditures by consumers on goods and services.
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| Personal income | The total income of households befores paying person income taxes.
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| Personal Saving | The amount of disposable income that is left after total personal spending in a given period.
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| Services | the things we buy that do not involve the production of physical things, such as legal and medical services and education.
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| underground economy | The part of the economy in whihc transactions take place and in which income is generated that is unreported and therefore not counted in GDP.
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| labor force | The number of people employed plus the number of unemployed.
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| Natural Rate of Unemployment | The Unemployment that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of frictional unemployment and structural unemployment.
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| Sustained inflation | Occurs when the overall price level continues to rise over some fairly long period of time.
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| budget deficit | The difference between what a government spends and what it collects in taxes in a given period: G-T
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| Federal Budget | The budget of the federal government
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| Federal Debt | The total amount owed by the federal government
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| Protection | the practice of shielding a sector of the economy from foreign competition.
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| quota | a limit on the quantity of imports
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| tariff | a tax on imports
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| terms of trade | the ratio at which a country can trade domestic products for imported products.
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| trade deficit | Occurs when a country's exports of goods and services are less than its imports of goods and services in a given period.
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| exchange rate | the price of one country's currency in terms of another country's currency; the ratio at which two currencies are traded for each other.
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| foreign exchange | all currencies other than the domestic currency of a given country.
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| net exports of goods and services (EX - IM) | the difference between a country's total exports and total imports.
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| economic globalization | the process of increasing economic interdependence amoung countries and their citizens.
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| fertility rate | the birth rate. equal to (the number of births per year divided by the population) x 100
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| mortality rate | The death rate. Equal to (the number of deaths per year divided by the population) x 100
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| Vicious-circle-of-poverty hypothesis | Suggests that poverty is self-perpetuatng because poor nations are unable to save and invest enough to accumulate the capital stock that would help them grow.
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