absolute advantagethe comparison among producers of a good according to their productivity aggregate demand curvea curve that shows the quantity of goods and services that households firms and the government want to buy at each price level aggregate riskrisk that affects all economic actors at once aggregate supply curvea curve that shows the quantity of goods and services that firms choose to produce and sell at each price level appreciationan increase in the value of a currency as measured by the amount of for eign currency it can buy automatic stabilizerschanges in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action balanced tradea situation in which exports equal imports bonda certificate of indebtedness budget deficita shortfall of tax revenue from government spending budget surplusan excess of tax revenue over government spending business cyclefluctuations in economic ac tivity such as employment and production capital flighta large and sudden reduc tion in the demand for assets located in a country catch up effectthe property whereby coun tries that start off poor tend to grow more rapidly than countries that start off rich central bankan institution designed to oversee the banking system and regulate the quantity of money in the economy circular flow diagrama visual model of the economy that shows how dollars flow through markets among households and firms classical dichotomythe theoretical separa tion of nominal and real variables closed economyan economy that does not interact with other economies in the world collective bargainingthe process by which unions and firms agree on the terms of employment commodity moneymoney that takes the form of a commodity with intrinsic value comparative advantagethe comparison among producers of a good according to their opportunity cost competitive marketa market in which there are many buyers and many sellers so that each has a negligible impact on the mar ket price complementstwo goods for which an in crease in the price of one leads to a decrease in the demand for the other compoundingthe accumulation of a sum of money in say a bank account where the interest earned remains in the account to earn additional interest in the future consumer price index CPI a measure of the overall cost of the goods and services bought by a typical consumer consumer surplusa buyer s willingness to pay minus the amount the buyer actually pays consumptionspending by households on goods and services with the exception of purchases of new housing costthe value of everything a seller must give up to produce a good cross price elasticity of demanda measure of how much the quantity demanded of one good responds to a change in the price of another good computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good crowding outa decrease in investment that results from government borrowing crowding out effectthe offset in aggregate demand that results when expansionary fis cal policy raises the interest rate and thereby reduces investment spending currencythe paper bills and coins in the hands of the public cyclical unemploymentthe deviation of unemployment from its natural rate deadweight lossthe fall in total surplus that results from a market distortion such as a tax demand curvea graph of the relationship between the price of a good and the quantity demanded demand depositsbalances in bank accounts that depositors can access on demand by writing a check demand schedulea table that shows the relationship between the price of a good and the quantity demanded depreciationa decrease in the value of a currency as measured by the amount of for eign currency it can buy depressiona severe recession diminishing returnsthe property whereby the benefit from an extra unit of an input de clines as the quantity of the input increases discount ratethe interest rate on the loans that the Fed makes to banks discouraged workersindividuals who would like to work but have given up looking for a job diversificationthe reduction of risk achieved by replacing a single risk with a large number of smaller unrelated risks economicsthe study of how society man ages its scarce resources efficiencythe property of a resource alloca tion of maximizing the total surplus received by all members of society efficiencythe property of society getting the most it can from its scarce resources efficiency wagesabove equilibrium wages paid by firms in order to increase worker productivity efficient markets hypothesisthe theory that asset prices reflect all publicly available information about the value of an asset elasticitya measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants equilibriuma situation in which the price has reached the level where quantity supplied equals quantity demanded equilibrium pricethe price