Level 41
Level 42

U.S. Economy & the World


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free-enterprise system
individuals have the right to own private property and to make individual choices about how to use that property and their own creativity to make money (U.S. economic system)
consumer
a person who buys goods or services
producer
a person or company that provides goods or services
circular flow model
model that demonstrates how consumers, producers, and the government all interact in a free enterprise economy (demonstrates how the U.S. economy works)
competition
basis of capitalism because it encourages innovation, lower prices, and motivation.
leading indicators
help economists make predictions about future economic growth
coincident indicators
show how the economy is doing at the present time
lagging indicators
economic signs that follow major changes in the business cycle
Tax Incentives
Examples of Supply-Side Polices
easy-money policy
increases the growth of money supply
tight-money policy
reduces the growth of money supply, thus slowing economic growth
open-market operations
involve the buying and selling of government bonds
reserve requirement
the amount of money banks must have available at all times
Absolute Advantage
Ability of one country to produce more output per unit of input than any other country
Comparative Advantage
Ability of a country to produce a product at a lower opportunity cost than another country
opportunity cost
how much of a good do you forgo to produce the other good
trade barrier
a limit on the exchange of goods
balance of payments
the difference between a country's imports and its exports
trade surplus
a favorable balance of trade; occurs when the value of a country's exports exceeds that of its imports
Trade Deficit
A negative balance of trade (a country imports more than it exports)
Level 43