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18 Cards in this Set
- Front
- Back
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What are reasons for comparative advantage?
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Differences in climate, differences in factor endowments, differences in technology
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with free trade, the price of a good must be equal across different countries selling the good
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Law of One Price
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individuals have the incentive to buy the good in the cheaper country and export it to the more expensive country
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Purchasing Power Parity
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gain to domestic consumers from purchasing Q(D) units at price P(D); difference between willingness to pay and what you actually have to pay
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Consumer Surplus
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Difference between what they receive per unit and marginal cost
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Producer Surplus
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helps domestic producers at the expense of domestic consumers
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Trade protection
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taxes imposed on imports
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Tariffs
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legal limitations on imports
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import quotas
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rate at which two currencies trade for each other in the open market
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Exchange rate
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What is the goal of expansionary fiscal policy?
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To increase equilibrium output in the economy
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changes in government spending and taxes
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Fiscal Policy
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How do we pay for government spending?
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Raise revenue through taxes, Borrow money through bond issues
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Federal debt continues to grow
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Debt Service
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G = T
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Balanced Budget Multiplier
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requirement that all spending be paid for by Tax Revenue
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Balanced Budget
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caused by spillover from Goods Market to Money Market
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Secondary effect
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secondary effect is also called
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Crowding Out
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refers to the fact that increasing Y increases r which causes Y to decrease some
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Crowding Out
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