GLOBAL FINANCE

``An `acceptable' level of unemployment means that the govern-
ment economist to whom it is acceptable still has a job.''

Anonymous

GLOSSARY

Aggregate demand The total demand for goods and services in an

economy.

Aggregate income The total income of all production factors in a

given period. It is exactly equal to aggregate output.

Aggregate output The total amount of goods and services produced

or supplied in a given period.

Balance of trade The difference between a country's exports and

imports.

Balance of payments The accounting record of a country's trans-

actions with the rest of the world in goods, assets, and services;
also, the accounting record of its supply and demand for foreign
currencies.

Capital flight The escape of financial and human capital from coun-

tries offering low rates of return.

Command economy An economy where central government sets

prices, wages, and production targets.

Comparative advantage There is much misunderstanding of this

key concept. It is the idea that everyone benefits if each country
specializes in producing the goods that it can generate most effi-
ciently, relative to other countries, and imports those goods that
other countries produce most efficiently. The USA produces some
food crops more efficiently than China, while China produces
clothing more efficiently. By selling these goods to one another,
they both gain. See Chapter 2.

Depression A severe and long-lasting recession (see ``recession'').

There is no consensus on precisely when a recession becomes a
depression.

Federal Reserve System (the Fed) The central bank in the US that

monitors and influences the US money supply and interest rates.

GATT An international agreement on trade first signed in 1947.
Great Depression A period of severe unemployment and economic

contraction during the 1930s.