342
Free trade The import and export
of goods and services without tariffs
or quotas being imposed.
Game theory The study of strategic
decision making by interacting
individuals or firms.
GDP See gross domestic product.
Globalization The free flow of
money, goods, or people across
international borders; increased
economic interdependence between
countries through the integration of
goods, labor, and capital markets.
GNP See gross national product.
Gold standard A monetary system
in which a currency is backed by a
reserve of gold and can theoretically
be exchanged on demand for a
quantity of gold. No country
currently uses the gold standard.
Good Something that satisfies the
desire or requirement of a consumer;
normally used to refer to a product
or raw material.
Great Depression A period of
worldwide economic recession from
1929 to the mid-1930s. It started in
the US with the Wall Street Crash.
Gross domestic product (GDP)
A measure of national income
over the course of a year. GDP is
calculated by adding up a country’s
entire annual output, and it is often
used to measure a country’s
economic activity and wealth.
Gross national product (GNP)
The total value of all goods and
services produced in one year by
domestic-owned businesses,
whether those businesses operate
within the country or abroad.
Hyperinflation A very high rate
of inflation.Inflation A situation in which the
prices of goods and services in an
economy are rising.Interest rate The price of
borrowing money. The interest rate
on a loan is generally stated as a
percentage of the amount per year
that must be repaid in addition to
the sum borrowed.International Monetary Fund
(IMF) An international organization
set up in 1944 to supervise the
post-war exchange rate system,
later moving into the provision of
finance to poor countries.Inverse relationship A situation
in which one variable decreases as
another increases.Investment An injection of
capital aimed at increasing future
production, such as a new machine
or training for the workforce.Invisible hand Adam Smith’s idea
that as individuals pursue their own
interests in the market, it leads
inevitably to the collective benefit
of society, as if there were some
guiding “invisible hand.”Keynesian Multiplier The theory
that an increase in government
spending in an economy produces
an even greater increase in income.Keynesianism A school of
economic thought based on the
ideas of John Maynard Keynes,
advocating government spending
to pull economies out of recession.Laissez-faire A French term
meaning “let it do,” which is usedto describe markets free from
government intervention.Liquidity The ease with which an
asset can be used to buy something
without this causing a reduction
in the asset’s value. Cash is the
most liquid asset since it can be
used immediately to buy goods or
services, with no effect on its value.Macroeconomics The study of
the economy as a whole, looking
at economy-wide factors such as
interest rates, inflation, growth,
and unemployment.Marginal cost The increase in
total costs caused by producing
one more unit of output.Marginal utility The change in
total utility, or satisfaction, that
results from the consumption of one
more unit of a product or service.Market failure Where a market
fails to deliver socially optimal
outcomes. Market failure may be
due to lack of competition (such as
a monopoly), incomplete information,
unaccounted costs and benefits
(externalities), or lack of potential
private profit (as with public goods).Mercantilism A doctrine that
dominated Western European
economics during the 16th and
18th centuries. It stressed the
importance of government control
over foreign trade to maintain a
positive balance of trade.Microeconomics The study of
the economic behavior of
individuals and firms.Mixed economy An economy
in which part of the means of
production is owned by the stateGLOSSARY