II. Key Definitions
1. Absolute Advantage: A country or individual has an absolute advantage in the production of a good when the country can produce the good using fewer resources than another country or individual.
2. Aggregate Demand (AD): A schedule or curve that shows the total quantity demand for all goods and services of a nation at various price levels at a given period of time.
3. Aggregate Supply (AS): The total amount of goods and services that all the firms in all the industries in a country will produce at various price levels in a given period of time.
4. Appreciation: An increase in the value of one currency relative to another, resulting from an increase in demand for or a decrease in supply of the currency on the foreign exchange market.
5. Balance of Payments: Measures all the monetary exchanges between one nation and all other nations. Includes the current account and the capital account.
6. Bonds: A certificate of debt issued by a company or a government to an investor.
7. Budget Deficit: When a government spends more than it collects in tax revenues in a given year.
8. Business Cycle: A model showing the short-run periods of contraction and expansion in output experienced by an economy over a period of time.
9. Capital: Human-made resources (machinery and equipment) used to produce goods and services; goods that do not directly satisfy human wants. Sometimes separated into human capital (education, know-how) and physical capital (tools you can touch and operate).
10. Capital Account (also called the Financial Account): Measures the flow of funds for investment in real assets (such as factories or office buildings) or financial assets (such as stocks and bonds) between a nation and the rest of the world.