Policy Prescriptions
When the government sells a state-owned-enterprise
What is privatization?
When one country has a lower opportunity cost in the production of a good than another country
What is comparative advantage?
The three accounts of the balance of payments
What are the current, capital, and financial accounts?
NAFTA is an example of one of these
What is a regional trade agreement?
The problem of unlimited desires and limited resources
What is scarcity
When government deficit spending ends up reducing private investment spending
What is crowding out?
Differences in quantities and qualities of factors of production, as well as levels of technology
What are factor endowments?
If a country is consuming inside this thing, then it probably has a surplus in its current account
What is a production possibilities curve?
These are the two differences between a common market and a monetary union
What are a common currency and a common central bank?
Sickness because of second-hand smoke is an example these
What are negative consumption externalities?
Unemployment benefits and progressive income taxes
What are automatic stabilizers?
The deadweight loss from these trade protection measures is the greatest because the government does not get any revenue out of them
What are import quotas?
When a country using a managed exchange rate system intentionally devalues its currency to increase exports
What is a dirty float?
These trade blocs are a level of economic integration above free trade areas and below common markets
What are customs unions?
A measure of the responsiveness of quantity demanded to a change in income
What is income elasticity of demand?
When price level does not decrease when aggregate demand decreases in the Keynesian model
What is the ratchet effect?
Economists prefer these trade protection measures because they do not affect consumption
What are subsidies?
This component of an account in the balance of payments records investments in things like stocks and bonds
What is portfolio investment?
This is when a country buys higher cost imports instead of lower cost imports because it joins a trade bloc
What is trade diversion?
The fraction of income that people spend rather than that is saved, taxed, or used to buy imports
What is the marginal propensity to consume?
A new domestic industry that has not had time to establish itself and achieve efficiencies in production and may therefore be unable to compete with more "mature" competing firms from abroad
What is an infant industry?
If a country has one of these, then its government does not need to intervene to balance the balance of payments
What is a freely floating exchange rate system?
These areas work best when there is synchronization of the phases of the business cycle among their member countries
What are optimum currency areas?