Economics & Trade Glossary

A macroeconomic framework showing how aggregate demand and aggregate supply jointly determine an economy's price level and real output in the short and long run.

An economic theory that people forecast future variables (like inflation) by adjusting past expectations in proportion to recent forecast errors.

A market failure where asymmetric information before a transaction causes the worst-risk participants to disproportionately enter, degrading market quality.

The total demand for all finished goods and services in an economy at a given price level and time period, typically measured as nominal or real GDP on the expenditure side.

The total quantity of goods and services that producers in an economy are willing and able to supply at a given overall price level over a specified period.

Measures taken to protect domestic industries from foreign companies selling products below cost to gain market share.

An [Anti-Dumping](https://modeldiplomat.com/learn/glossary/anti-dumping) duty is a tariff imposed on imports priced below fair market value to protect domestic industries from unfair competition.

Trade defense tools used to protect domestic industries from foreign companies selling products below market value.

Government rules and enforcement actions that prevent monopolies, cartels, and anti-competitive mergers in order to preserve market competition.

A measure of income inequality that incorporates a society's aversion to inequality through an adjustable parameter, ranging from 0 (perfect equality) to 1.

A heterodox economic tradition originating in late-19th-century Vienna that emphasizes methodological individualism, subjective value, and spontaneous market order.

Fiscal mechanisms—chiefly progressive taxes and transfer programs—that automatically expand or contract with the business cycle to smooth output without new legislation.

A record of all economic transactions between residents of a country and the rest of the world over a period.

The difference between the monetary value of a country's exports and imports of goods (and sometimes services) over a given period.

A downturn in which firms and households prioritize paying down debt over spending or investing, suppressing aggregate demand even when interest rates are very low.

A bank run occurs when many depositors withdraw funds simultaneously over fears the bank is insolvent, often causing the very failure they feared.

A banking crisis is a period of acute distress in which banks face insolvency, runs, or system-wide failures that disrupt credit and payments.

Tax strategies used by multinationals to shift profits to low- or no-tax jurisdictions, eroding the tax bases of countries where real economic activity occurs.

A field that combines insights from psychology and economics to explain how people actually make decisions, often departing from strict rational-choice models.

A model of oligopoly in which firms compete by simultaneously setting prices for a homogeneous good, driving price down to marginal cost.

A graphical relationship showing an inverse correlation between the unemployment rate and the job vacancy rate in an economy.

An informal exchange-rate gauge published by The Economist that compares the price of a McDonald's Big Mac across countries to estimate currency over- or undervaluation.

A monetary system in which a country's currency is backed by and freely convertible into fixed quantities of two metals, typically gold and silver.

The idea that decision-makers act rationally only within the limits of available information, cognitive capacity, and time, rather than optimizing perfectly.

The IMF and [World Bank](https://modeldiplomat.com/learn/glossary/world-bank) created to promote international monetary cooperation and economic development.

The capital account records cross-border transfers of ownership of assets, including investments, loans, and banking flows.

The net flow of capital transactions, including investments and loans, into and out of a country within the [Balance of Payments](https://modeldiplomat.com/learn/glossary/balance-of-payments) framework.

The process of removing restrictions on capital flows into and out of a country to encourage investment and financial integration.

A measure of a bank's capital relative to its risk-weighted assets to ensure financial stability.

Government measures to regulate cross-border capital movements to stabilize the economy.

Rapid movement of large sums of money out of a country due to economic or political instability, often harming the domestic economy.

The degree of fluctuation in cross-border financial investments and loans over a short period, affecting economic stability.

A tax levied on the profit realized when an asset such as stock, real estate, or a business is sold for more than its purchase price.

When strict climate policies cause emissions to shift to countries with looser regulations.

A market-based approach to reducing greenhouse gas emissions by assigning a cost to emitting carbon dioxide.

A tradition of economic thought associated with the University of Chicago that emphasizes free markets, monetarism, and rational-choice analysis.

Goods that are excludable but non-rival up to a congestion point, enjoyed collectively by members who share the cost of provision.

An economic proposition that, absent transaction costs, parties will bargain to an efficient allocation of resources regardless of how property rights are initially assigned.

A structured finance product that pools debt assets and resells them as tranches with different risk and return profiles to investors.

An economic system in which a central government decides what is produced, how it is produced, and how goods and resources are allocated.

Goods that are rivalrous in consumption but difficult to exclude users from, such as fisheries, groundwater, forests, and the atmosphere.

The difference between what consumers are willing to pay for a good and the price they actually pay, aggregated across all buyers in a market.

A market where firms face no significant barriers to entry or exit, so the threat of new competitors disciplines incumbents to behave competitively.

The economic theory predicting that poorer countries' per-capita incomes will grow faster than richer ones', causing income levels to converge over time.

A measure of price changes that excludes volatile food and energy components to reveal the underlying, persistent trend in inflation.

Additional capital banks must hold during economic expansions to protect the financial system during downturns.

Government spending and taxation policies designed to counteract economic fluctuations and stabilize growth.

Monetary actions aimed at stabilizing the economy by increasing money supply during recessions and decreasing it during booms.

Additional tariffs imposed to offset subsidies provided by foreign governments to their exporters, aiming to level the playing field.

A [Tariff](https://modeldiplomat.com/learn/glossary/tariff) imposed to offset subsidies provided by foreign governments to their exporters.

Trade policy actions, such as tariffs, imposed to offset subsidies provided by foreign governments to their exporters.

An oligopoly model in which firms compete by simultaneously choosing production quantities, with market price determined by total output.

The process by which new innovations, firms, or technologies displace older ones, driving economic growth while rendering existing industries, jobs, and capital obsolete.

A financial derivative in which one party pays periodic premiums to another in exchange for compensation if a specified borrower defaults on its debt.

A measure of how the quantity demanded of one good responds to a price change in another good, used to identify substitutes and complements.

A macroeconomic phenomenon in which government spending or investment stimulates, rather than displaces, additional private-sector investment and consumption.

An economic phenomenon where increased government borrowing or spending reduces private sector investment, typically by raising interest rates or absorbing available capital.

An agreement between two parties to exchange principal and interest payments in different currencies over a set period.

Joblessness caused by downturns in the business cycle, when aggregate demand falls and firms cut output and payrolls.

A government budget balance estimate that strips out the effects of the business cycle to show the underlying fiscal stance at potential output.

The loss of total economic welfare that occurs when a market fails to reach its competitive equilibrium, leaving mutually beneficial trades unrealized.

A situation where a country's or firm's debt burden is so large that it discourages new investment because returns would mostly accrue to existing creditors.

Measures that reduce or restructure the debt burden of developing countries to improve repayment capacity.

An assessment of a country’s ability to service its debt without external assistance or default.

An analytical tool used by international organizations to assess a country's ability to manage its external debt without defaulting.

A financial arrangement where a country's external debt is exchanged for equity stakes in domestic companies.

An agreement where a portion of a country's debt is forgiven in exchange for commitments to environmental conservation.

A measure comparing a country's total government debt to its annual gross domestic product, expressed as a percentage to gauge fiscal sustainability.

Deflation is a sustained decline in the general price level of goods and services, the opposite of inflation, often associated with weak demand and rising real debt burdens.

A planned reduction of energy and material throughput in wealthy economies to bring them back within ecological limits while improving human well-being.

Goods judged socially harmful and over-consumed at market prices, typically warranting taxes, regulation, or bans — e.g., tobacco, alcohol, gambling.

A government-backed guarantee that protects depositors against loss of their bank deposits up to a set limit if the bank fails.

The interest rate a central bank charges commercial banks for short-term loans, or the rate used to convert future cash flows into present value.

A slowdown in the rate of inflation, meaning prices are still rising but more slowly than before — distinct from deflation, where prices actually fall.

The WTO entity responsible for resolving trade disputes between member countries.

An economic framework proposing humanity thrive between a social foundation of human needs and an ecological ceiling of planetary boundaries.

Economic harm caused when resource exports lead to currency appreciation, reducing competitiveness of other sectors.

A refundable U.S. federal tax credit for low- to moderate-income working individuals and families, designed to supplement wages and offset payroll taxes.

A diagram showing all possible allocations of two goods between two consumers, used to analyze trade, efficiency, and Pareto-optimal outcomes.

A weighted average [Exchange Rate](https://modeldiplomat.com/learn/glossary/exchange-rate) of a country's currency against a basket of other currencies, reflecting trade importance.

The weighted average [Exchange Rate](https://modeldiplomat.com/learn/glossary/exchange-rate) of a country's currency against a basket of other currencies, reflecting trade patterns and currency values.

Measures the percentage increase in value added per unit of output due to tariffs on inputs and final goods, showing the true level of protection domestic industries receive.

The [Tariff](https://modeldiplomat.com/learn/glossary/tariff) rate that actually affects the cost of imported goods after considering the entire production process and inputs. It measures the real protection given to domestic industries by tariffs.

An economic theory holding that firms voluntarily pay wages above the market-clearing rate to raise productivity, reduce turnover, and discourage shirking.

A measure of how sensitive the quantity demanded of a good is to changes in price, income, or the price of related goods.

A macroeconomic framework arguing that long-run growth is driven by internal factors like human capital, innovation, and knowledge spillovers rather than exogenous technology.

A cognitive bias in which people assign higher value to things merely because they own them, demanding more to give up an item than they would pay to acquire it.

The global shift from fossil fuels to renewable energy sources to reduce environmental [Impact](https://modeldiplomat.com/learn/glossary/impact).

An empirical observation that as household income rises, the share of income spent on food falls, even though absolute food spending may increase.

A hypothesized inverted-U relationship between per-capita income and environmental degradation, where pollution rises with early growth then falls past a turning point.

Illegal methods used to avoid tariffs, quotas, or sanctions, such as mislabeling goods or smuggling.

The price of one country's currency expressed in terms of another's, affecting trade and investment flows.

A weighted average of several currencies used by a country to stabilize its own currency's value.

The extent to which changes in exchange rates affect domestic prices of imported and exported goods.

A fixed [Exchange Rate](https://modeldiplomat.com/learn/glossary/exchange-rate) system where a country’s currency value is tied to another currency or basket of currencies.

The system a country uses to manage its currency in relation to other currencies, such as fixed, floating, or pegged.

The degree of fluctuation in a currency's value against others over time.

A government or quasi-government institution that provides financing and insurance to support domestic companies' exports.

The process by which a country increases the variety of products and markets in its export portfolio to reduce economic vulnerability.

Government financial support to domestic producers to make their exports more competitive internationally.

An economic strategy that emphasizes expanding exports to drive national economic development and increase GDP.

A cost or benefit from an economic activity that affects third parties who did not choose to incur it and is not reflected in market prices.

The interest rate at which U.S. depository institutions lend reserve balances to each other overnight, targeted by the Federal Reserve to steer monetary policy.

Government-issued money that is not backed by a physical commodity like gold, deriving its value from state decree and public trust.

The spread of financial instability from one country or market to others due to interconnected financial systems.

Hyman Minsky's theory that capitalist economies endogenously generate financial fragility during long expansions, eventually triggering crises.

Restrictions on financial transactions imposed on countries or entities to influence their policies.

The ratio of a change in national income to the change in government spending that caused it, indicating [Fiscal Policy](https://modeldiplomat.com/learn/glossary/fiscal-policy) effectiveness.

The process where governments align their fiscal policies to achieve common economic objectives and avoid negative spillovers.

The ratio measuring the change in economic output resulting from a change in government spending or taxation.

The capacity of a government to provide additional budgetary resources without compromising fiscal sustainability.

A tax system that applies a single, constant marginal rate to income (or another base) rather than rates that rise with the size of the base.

Short-term joblessness that arises when workers are between jobs, entering the labor force, or searching for positions that better match their skills.

The formal study of strategic decision-making among rational actors whose outcomes depend on the choices of others.

An economic framework analyzing how supply, demand, and prices interact simultaneously across all markets in an economy to reach a mutually consistent equilibrium.

A Giffen good is an inferior good whose quantity demanded rises when its price rises, violating the standard law of demand.

A statistical measure of income or wealth inequality within a population, ranging from 0 to 1.

A situation where state intervention in an economy produces a less efficient allocation of resources than would have occurred without it.

The total market value of all final goods and services produced within a country in a given period.

An early growth model linking an economy's growth rate to its savings rate and capital-output ratio, emphasizing investment as the engine of expansion.

The total change in the price of a basket of consumer goods and services over a set period, including volatile items like food and energy.

A monetary policy concept in which a central bank directly distributes newly created money to the public to stimulate spending and inflation.

A measure of market concentration calculated by summing the squared market shares of all firms in a market, used by regulators to assess competition.

Heterodox economics is an umbrella term for schools of economic thought that reject or extend the core assumptions of mainstream neoclassical economics.

An economic framework holding that investments in education, training, and health raise individual productivity and, in aggregate, drive national economic growth.

A behavioral-economics pattern where people value near-term rewards disproportionately more than later ones, causing time-inconsistent choices.

An extremely rapid, accelerating, and typically self-reinforcing rise in the general price level, conventionally defined as monthly inflation exceeding 50%.

Government authorization required to bring certain goods into a country, often used as a trade barrier.

The percentage of domestic consumption satisfied by imports, indicating trade openness.

A government-imposed limit on the quantity or value of a specific good that can be imported during a given period.

An economic policy aimed at reducing foreign dependency by encouraging domestic production of goods previously imported.

An economic strategy that promotes domestic production of goods to replace imports and foster industrial growth.

A tax imposed by a government on goods brought into the country to protect domestic industries and generate revenue.

A measure of how much the quantity demanded of a good changes in response to a change in consumer income, expressed as a ratio of percentage changes.

The justification for protecting new industries until they become competitive against established foreign firms.

Trade policy measures that temporarily shield new domestic industries from international competition to help them grow.

The rate at which households, firms, and investors anticipate prices will rise in the future, which shapes wage demands, pricing decisions, and monetary policy.

The percentage increase in the general price level of goods and services over a period, reducing purchasing power.

A monetary policy framework in which a central bank publicly commits to a numerical inflation rate and adjusts interest rates to achieve it over a stated horizon.

The part of an economy made up of workers and enterprises that are not regulated, taxed, or fully protected by the state.

The process by which a new technology, practice, or idea spreads through a population of potential adopters over time.

An international organization providing financial support and advice to countries facing [Balance of Payments](https://modeldiplomat.com/learn/glossary/balance-of-payments) problems.

A macroeconomic framework showing how interest rates and output are jointly determined by equilibrium in the goods market (IS) and the money market (LM).

The pattern where a country's trade balance worsens immediately after currency depreciation before improving, tracing a J-shape over time.

A production strategy where inputs arrive only as needed, minimizing warehousing costs but increasing exposure to supply-chain shocks.

A policy criterion under which a change is deemed efficient if the winners gain enough to hypothetically compensate the losers, even if no compensation is actually paid.

A hypothesized inverted-U relationship between economic development and income inequality, suggesting inequality rises then falls as a country industrializes.

The share of the working-age population that is either employed or actively seeking work, used to measure how engaged a population is in the labor market.

A theoretical curve showing that tax revenue rises with tax rates up to a point, beyond which higher rates reduce revenue by discouraging taxable activity.

An information asymmetry in which buyers cannot distinguish high-quality goods from low-quality ones, driving good products out of the market.

The stage in a developing economy when surplus rural labor is exhausted, pushing up wages and ending cheap-labor-driven industrial growth.

A situation where nominal interest rates are at or near zero and conventional monetary policy loses traction because people hoard cash rather than spend or invest.

A graph plotting the cumulative share of income (or wealth) held by the cumulative share of a population, used to visualise inequality.

A behavioral-economics finding that people weigh losses roughly twice as heavily as equivalent gains when making decisions under risk.

The argument that econometric models built on historical data cannot reliably predict the effects of policy changes because agents' expectations and behavior will adjust.

A regulatory approach that targets risks to the financial system as a whole rather than the soundness of individual institutions.

A situation in which a free market produces an inefficient allocation of resources, leading to outcomes that reduce overall social welfare.

An economic rule stating that a currency devaluation improves the trade balance only if the sum of export and import price elasticities exceeds one.

A behavioral economics concept describing how people mentally categorize, label, and evaluate money differently based on its source, intended use, or context.

Small fixed costs firms incur when changing posted prices, used in macroeconomics to explain why nominal prices adjust slowly to economic shocks.

Goods or services judged to be under-consumed relative to their social benefit, justifying government provision, subsidy, or mandate.

A development phase in which a country reaches middle-income status but stalls before achieving high-income levels, unable to compete with low-wage or high-innovation economies.

A sudden collapse in asset prices and credit availability that ends a prolonged period of speculative borrowing, named after economist Hyman Minsky.

An economic system that blends private enterprise with government intervention, combining market mechanisms with public ownership, regulation, and welfare provision.

A heterodox macroeconomic theory holding that currency-issuing governments are constrained by inflation and real resources, not by tax revenue or borrowing capacity.

The concept that changes in the money supply only affect nominal variables like prices, not real variables like output or employment, in the long run.

Central bank actions controlling money supply and interest rates to manage inflation and economic growth.

Central bank actions to offset the [Impact](https://modeldiplomat.com/learn/glossary/impact) of foreign exchange interventions on the domestic money supply.

The process through which changes in [Monetary Policy](https://modeldiplomat.com/learn/glossary/monetary-policy) influence economic variables like inflation and output.

The process through which changes in [Monetary Policy](https://modeldiplomat.com/learn/glossary/monetary-policy) affect the economy, including interest rates, investment, and inflation.

Central bank actions to offset foreign exchange interventions to maintain [Monetary Policy](https://modeldiplomat.com/learn/glossary/monetary-policy) targets.

A group of countries that adopt a single currency and coordinate [Monetary Policy](https://modeldiplomat.com/learn/glossary/monetary-policy).

A market structure with many firms selling differentiated products, low barriers to entry, and some pricing power derived from brand or product differences.

A situation in which one party takes on greater risk because another party bears the cost of that risk, distorting incentives and behavior.

Specific cases in trade agreements where the Most-Favored-Nation principle does not apply, allowing preferential treatment.

The most favored nation principle requires WTO members to treat all other members equally regarding trade tariffs and regulations without discrimination.

An open-economy macroeconomic model showing how fiscal and monetary policy effects depend on the exchange-rate regime and capital mobility.

The Non-Accelerating Inflation Rate of Unemployment: the unemployment rate consistent with stable inflation in an economy.

A state in a strategic game where no player can improve their payoff by unilaterally changing strategy, given the strategies of all other players.

A market in which a single firm can supply the entire demand at lower total cost than two or more firms could, due to large fixed costs and economies of scale.

The unemployment rate consistent with stable inflation and an economy at potential output, reflecting frictional and structural joblessness but not cyclical demand shortfalls.

A tax-and-transfer system in which households earning below a threshold receive cash payments from the government instead of paying income tax.

An economic phenomenon where a product or service becomes more valuable to each user as the total number of users grows.

A macroeconomic school that builds models on rational expectations, continuous market clearing, and microfoundations, arguing systematic policy cannot alter real output.

A macroeconomic school that combines microfoundations and rational expectations with sticky prices and wages to justify active monetary and fiscal stabilization policy.

An index measuring a currency’s value relative to a weighted average of several foreign currencies without adjusting for price differences.

Regulatory or procedural restrictions that countries use to limit imports without applying tariffs, such as quotas or licensing requirements.

Policies and regulations other than tariffs that can restrict or promote trade, such as quotas, standards, licensing, and subsidies. They often have significant trade [Impact](https://modeldiplomat.com/learn/glossary/impact).

Government aid designed to promote economic development and welfare in developing countries.

An empirical rule of thumb linking changes in a country's unemployment rate to changes in its real GDP growth.

An organization of oil-exporting countries coordinating petroleum policies to influence global oil markets.

The buying and selling of government securities by a central bank in the open market to steer short-term interest rates and the money supply.

An economic region where adopting a single currency yields net benefits, based on labor mobility, trade integration, price flexibility, and fiscal transfers.

The hypothesis that developing countries cannot borrow abroad in their own currency, creating currency mismatches that magnify the impact of financial crises.

An inequality measure equal to the income share of the top 10% of a population divided by the income share of the bottom 40%.

A Keynesian idea that if everyone saves more at once, aggregate demand falls, output drops, and total savings may actually decline.

A Keynesian proposition that when interest rates are stuck at the zero lower bound, an increased willingness to work can lower total employment and output.

An allocation of resources in which no one can be made better off without making at least one other person worse off.

A tax regime that applies a reduced corporate income tax rate to profits earned from qualifying intellectual property such as patents.

The idea that decisions, institutions, or technologies persist because of accumulated past choices, even when alternative paths would be more efficient.

A nation whose economy heavily depends on the export of crude oil and petroleum products.

A country whose economy is heavily dependent on the export of oil and petroleum products.

An economic model describing an inverse short-run relationship between the unemployment rate and the rate of wage or price inflation.

A tax levied on an activity that generates negative externalities, set equal to the external social cost so private actors internalize the harm they impose on others.

An OECD-led framework imposing a 15% minimum effective tax rate on large multinational enterprises, regardless of where they book profits.

An economic system in which the state, rather than market prices, decides what is produced, how much, at what price, and for whom.

A heterodox school of macroeconomics emphasizing effective demand, fundamental uncertainty, and endogenous money, building on Keynes and Kalecki rather than the neoclassical synthesis.

A self-reinforcing mechanism that causes poverty to persist over time, making it difficult for individuals to escape without external help.

A treaty between countries that reduces tariffs for certain products to promote trade among the signatories.

A government's budget balance excluding interest payments on existing debt, showing whether current revenues cover current non-interest spending.

An economic framework analyzing how a principal can structure incentives and monitoring to align the actions of an agent who has different interests and superior information.

A game-theory model showing how two rational actors may fail to cooperate even when cooperation would yield the best joint outcome.

The difference between the price a producer receives for a good and the minimum price they would have been willing to accept to supply it.

A tax system in which the effective tax rate rises as the taxable base (usually income or wealth) increases, so higher earners pay a larger share.

A behavioral economics theory holding that people evaluate outcomes as gains or losses from a reference point and weigh losses more heavily than equivalent gains.

A good that is both non-rivalrous and non-excludable, meaning it can be consumed by many without depletion and people cannot easily be barred from benefiting.

An economic theory and exchange-rate metric stating that identical goods should cost the same across countries once prices are converted to a common currency.

A limit on the quantity or value of goods that can be imported or exported during a specified period.

The method by which import or export quotas are distributed among countries or companies.

The economic profit earned by holders of import licenses when a [Quota](https://modeldiplomat.com/learn/glossary/quota) limits supply and raises prices.

The hypothesis that economic actors form forecasts using all available information and the true structure of the economy, so their expectations are not systematically wrong.

The nominal exchange rate between two currencies adjusted for differences in price levels, measuring the relative purchasing power of one economy against another.

The tendency of inflation-adjusted wages to adjust slowly or incompletely to changes in labor market conditions, prolonging unemployment during downturns.

A treaty between two or more countries in a specific region to reduce trade barriers and increase economic integration.

A tax system in which the effective rate falls as income rises, placing a proportionally heavier burden on lower-income taxpayers than on wealthier ones.

Using political or legal influence to capture economic gains without creating new wealth, typically by securing favorable regulation, subsidies, tariffs, or monopoly privileges.

The market for repurchase agreements, where institutions borrow cash short-term by selling securities with a promise to buy them back at a slightly higher price.

A central bank rule setting the minimum fraction of customer deposits that commercial banks must hold as reserves rather than lend out.

The relocation of production, services, or supply chains from foreign countries back to a firm's home country, reversing earlier offshoring decisions.

The paradox that countries rich in non-renewable natural resources often experience slower growth, weaker institutions, and more conflict than resource-poor peers.

The theory that government deficit spending and tax-financed spending have identical effects on the economy because rational households save for future tax increases.

The extra return investors demand for holding a riskier asset over a risk-free benchmark, compensating for uncertainty of repayment or volatility.

A five-stage linear model of economic development proposed by W.W. Rostow arguing all societies progress from traditional agriculture to high mass consumption.

A temporary measure allowing countries to restrict imports of a product to protect domestic industries from serious injury caused by a surge in imports. It is regulated under WTO rules.

A temporary [Tariff](https://modeldiplomat.com/learn/glossary/tariff) imposed to protect domestic industries from a sudden surge in imports causing or threatening serious injury.

Temporary trade restrictions imposed to protect domestic industries from sudden surges in imports causing serious injury.

Temporary trade barriers imposed to protect domestic industries from sudden surges in imports causing serious injury.

A decision-making strategy where actors choose the first option that meets an acceptable threshold rather than searching for the optimal outcome.

A theory of economic growth driven by innovation and "creative destruction," where new technologies displace incumbents and generate productivity gains.

Penalties applied to third-party entities or countries that do business with a sanctioned country, extending the reach of sanctions.

A prolonged period of weak economic growth, low inflation, and depressed interest rates caused by chronic excess saving relative to investment demand.

The profit a government or central bank earns from issuing currency, equal to the difference between the face value of money and the cost of producing it.

Credit intermediation conducted by non-bank financial entities outside the standard banking regulatory framework, often performing bank-like functions without deposit insurance.

Economic activity that is legal in nature but deliberately hidden from public authorities to evade taxes, regulations, or reporting requirements.

The time and effort wasted minimizing cash holdings during inflation, named for the metaphorical wear on shoes from frequent trips to the bank.

An economic theory explaining how informed parties credibly convey private information to uninformed parties through costly, observable actions.

Programs designed to reduce poverty and vulnerability by providing income support and services.

A set of basic social security guarantees ensuring access to essential health care and income security.

Programs designed to provide basic support for vulnerable populations against economic shocks.

A neoclassical model of long-run economic growth in which output depends on capital, labor, and exogenous technological progress, converging to a steady state.

The yield difference between a country's government bonds and a benchmark "risk-free" bond of similar maturity, expressed in basis points.

Provisions in WTO agreements granting developing countries flexibilities and longer timeframes to implement commitments.

A sequential duopoly model where a leader firm commits to output first and a follower responds, giving the leader a first-mover advantage.

A macroeconomic condition combining stagnant growth, high unemployment, and persistent inflation simultaneously — historically considered unusual and difficult to remedy.

An economic model in which firms are managed for the benefit of all stakeholders—employees, customers, suppliers, communities, and the environment—not only shareholders.

An economic system in which the state acts as a dominant capitalist actor, owning or directing major firms while operating through market mechanisms and profit motives.

The tendency of nominal prices to adjust slowly to changes in supply, demand, or monetary conditions, causing short-run deviations from market-clearing levels.

The tendency of nominal wages to adjust slowly to changes in labor market conditions, particularly resisting downward movement during economic downturns.

Assets that lose value or become liabilities ahead of schedule due to regulatory, market, or technological shifts, especially in fossil fuel sectors.

Economic policies imposed by international financial institutions on developing countries to promote market liberalization and fiscal discipline.

Economic policies imposed by international financial institutions requiring developing countries to implement reforms in exchange for loans.

The reallocation of economic activity from agriculture to industry and services during development.

Long-term unemployment caused by changes in the economy that make certain skills obsolete or industries decline.

A 2007–2010 financial crisis triggered by mass defaults on high-risk U.S. home loans, which spread through securitized debt markets into a global recession.

Financial assistance provided by governments to domestic industries to make their products more competitive internationally.

A global messaging network facilitating secure financial transactions among banks worldwide.

The risk that the failure of one financial institution or market segment triggers cascading failures across the broader financial system or real economy.

A tax imposed on imported goods to protect domestic industries or raise government revenue.

A jurisdiction that offers very low or zero tax rates, strong financial secrecy, and minimal substance requirements to attract foreign capital and corporate profits.

The analysis of who ultimately bears the economic burden of a tax, which may differ from the party legally required to pay it.

A monetary policy formula proposed by John Taylor in 1993 that prescribes setting the central bank's interest rate based on inflation and output gap deviations.

The extra yield investors demand for holding a long-term bond instead of rolling over a series of short-term bonds of equivalent total maturity.

The ratio of export prices to import prices, indicating how many imports a country can buy per unit of exports.

Measures the ratio of export prices to import prices, indicating the purchasing power of a country's exports.

An entropy-based measure of economic inequality that can be decomposed into within-group and between-group components.

A proposed small levy on spot foreign-exchange transactions, intended to curb short-term currency speculation and raise revenue for global public goods.

The doctrine that certain financial institutions are so large or interconnected that their collapse would damage the wider economy, justifying government rescue.

Total Factor Productivity (TFP) is the share of output growth not explained by increases in labor or capital inputs, typically attributed to technology and efficiency.

Government programs that support workers and industries negatively affected by [Trade Liberalization](https://modeldiplomat.com/learn/glossary/trade-liberalization) through retraining and financial aid.

The difference between the monetary value of a country's exports and imports over a period.

A measure of how well the export profile of one country matches the import profile of another, facilitating bilateral trade.

Quantifies how well the export profile of one country matches the import profile of another, indicating potential for beneficial trade relations.

The increase in trade resulting from the reduction of trade barriers between member countries of a trade agreement.

Increase in trade efficiency and welfare when a trade agreement causes imports from more efficient producers.

The WTO entity responsible for resolving trade disagreements between member countries through established legal procedures.

The process of expanding the variety of products and markets in a country’s trade portfolio to reduce dependency risks.

Occurs when trade shifts from a more efficient exporter to a less efficient one due to the formation of a trade agreement.

Occurs when trade shifts from a more efficient exporter to a less efficient one due to a new trade agreement.

A measure of how sensitive the quantity of traded goods is to changes in trade costs or prices.

The responsiveness of quantity demanded of traded goods to changes in their prices internationally.

The responsiveness of the quantity supplied of a good to changes in its price in international markets.

Measures that simplify and streamline international trade procedures to reduce costs and delays at borders.

A WTO agreement aiming to expedite the movement, release, and clearance of goods across borders by simplifying customs procedures.

Expenses associated with complying with trade procedures, including documentation, inspections, and delays at borders.

A composite measure evaluating countries on customs efficiency, infrastructure quality, and regulatory environment for trade.

Policies and procedures that simplify and expedite the movement, release, and clearance of goods across borders to reduce trade costs and delays.

An international treaty aimed at liberalizing trade and investment in services sectors among participating countries.

An approach to measuring trade by accounting for the value added at each stage of production across countries rather than gross export values.

The removal or reduction of trade barriers to encourage freer international exchange of goods and services.

[Trade Liberalization](https://modeldiplomat.com/learn/glossary/trade-liberalization) effects describe changes in economic growth, employment, and income distribution following tariff reductions.

Negotiation sessions under the GATT/WTO [Framework](https://modeldiplomat.com/learn/glossary/framework) where multiple countries discuss and agree on reducing trade barriers.

Trade war occurs when countries impose retaliatory tariffs or barriers to restrict imports and protect domestic industries.

WTO agreement setting minimum standards for protecting intellectual property across member countries.

Policies that regulate foreign investment linked to trade, such as local content requirements or export performance rules.

A WTO agreement setting rules on investment measures that affect trade in goods among member countries.

A situation where individuals acting in their own self-interest deplete a shared resource, producing collectively worse outcomes for everyone.

The pricing of goods, services, or intangibles exchanged between related entities within a multinational enterprise, governed by tax rules to prevent profit shifting.

The puzzle, named after economist Gordon Tullock, that firms and interest groups spend surprisingly little on lobbying and bribery relative to the enormous policy rents they obtain.

A situation in which a banking crisis and a currency crisis occur simultaneously or in close succession, amplifying each other's economic damage.

The economic theory that a country's fiscal (budget) deficit and current account deficit are causally linked, with rising government deficits driving external imbalances.

Markets where a platform serves two distinct user groups whose value to each other depends on the size and behavior of the opposite group.

Trade or financial penalties imposed by one country independently to influence another nation's policies.

A government program providing all citizens with a regular, unconditional sum of money to ensure a basic standard of living.

A consumption tax levied at each stage of production on the value added to a good or service, ultimately borne by the final consumer.

A luxury good whose quantity demanded rises as its price increases, because high price signals status and exclusivity to buyers.

An agreement where exporting countries limit the quantity of goods exported to another country voluntarily.

A hypothetical agent in general equilibrium theory who calls out prices and adjusts them until supply equals demand across all markets simultaneously.

A recurring tax levied on the net value of an individual's or household's assets above a threshold, rather than on income or transactions.

An international institution that offers loans and development assistance to reduce poverty and support development projects.

An international institution that regulates and facilitates global trade agreements and dispute resolution.

The WTO entity responsible for resolving trade disputes between member countries.

When short-term government bond yields rise above long-term yields, producing a downward-sloping curve historically associated with oncoming recessions.

The constraint that nominal interest rates cannot easily be cut much below zero, limiting central banks' ability to stimulate the economy through conventional rate cuts.