International Trade
This core principle states that trade is not a zero-sum game — both trading partners benefit from specialization and exchange.
Mutual benefit
This economist created the neoclassical growth model showing how capital, labor, and technology drive long-run output.
Robert Solow
In the IS-LM model, the LM curve represents equilibrium in this market.
Money market
This type of monetary policy involves lowering interest rates and increasing money supply to stimulate a sluggish economy
Expansionary monetary policy
In the money market, this variable acts as the price of money — it adjusts until supply equals demand
Interest rate
Adam Smith's 1776 book that introduced absolute advantage and challenged mercantilist philosophy
Wealth of Nations
In the Solow model, the economy eventually reaches this point where capital per worker stops changing
Steady state
The IS curve shows all combinations of interest rates and income where this market is in equilibrium.
Goods market
When a central bank buys government bonds from commercial banks to inject money into the economy, this operation is used
Open market purchase
The money supply curve is drawn vertically because this institution fixes the quantity of money regardless of interest rates
Central bank
Ricardo proved that countries should specialize based on this — what they give up to produce one good instead of another.
Opportunity cost
In the Solow model, only this factor can sustain long-run growth in output per capita — capital accumulation alone cannot.
Technological progress
An increase in government spending shifts this curve to the right, raising both income and interest rates.
IS curve
This is the interest rate at which commercial banks can borrow directly from the central bank
Discount rate
Keynes identified three motives for holding money: transactions, precautionary, and this third one linked to asset speculation
Speculative motive
The H-O theorem states countries export goods that intensively use this — their most plentiful resource
Abundant factor
Unlike the Solow model, endogenous growth theory explains long-run growth as driven internally by investment in this type of capital.
Human capital
An increase in money supply by the central bank shifts this curve to the right, lowering interest rates and raising income
LM curve
When interest rates fall to zero and further cuts fail to stimulate spending, the economy is stuck in this
Liquidity trap
When real income rises, households need more cash for everyday purchases — this type of money demand increases
Transaction demand
VERs are worse than tariffs because these flow to foreign exporters instead of the domestic government treasury
Quota rents
The Solow model predicts poorer countries grow faster than richer ones, eventually catching up — this is called what.
Conditional convergence
The IS-LM model was built to formalize the macroeconomic framework of this British economist
John Maynard Keynes
This monetary policy tool sets the minimum percentage of deposits that banks must hold in reserve, directly limiting lending capacity
Reserve requirement
When the price level rises, money demand shifts right and equilibrium interest rates move in this direction.
Upward