Chapter 21 Sections 3 and 4 Key Terms

Situation that exists when a country can produce a good better than its trading partners can.

• Absolute advantage

• Trade surplus

• Trade deficit

• Comparative advantage

The difference in value between a country’s imports and exports.

• Absolute advantage

• Balance of payments

• Opportunity cost

• Trade barrier

Method of determining which products or services offer a nation the greatest absolute advantage.

• Absolute advantage

• Tax incentives

• Comparative advantage

• Easy-money policy

An economic policy that increases the amount of money in the money supply.

• Tight-money policy

• Reserve requirement

• Open-market operations

• Easy-money policy

The buying and selling of government securities.

• Open-market operations

• Easy-money policy

• Reserve requirement

• Absolute advantage

The value of an alternative good or service that a company or country has chosen not to produce in order to specialize in something else.

• Trade barrier

• Opportunity cost

• Comparative advantage

• Trade surplus

The amount of money that banks must have on hand.

• Tight-money policy

• Balance of payments

• Reserve requirement

• Opportunity cost

Special tax breaks for businesses to encourage investment.

• Easy-money policy

• Comparative advantage

• Trade barrier

• Tax incentives

Economic policy that involves raising interest rates to decrease the amount of money borrowed and reduce inflation.

• Easy-money policy

• Absolute advantage

• Open-market operations

• Tight-money policy

A government action that limits the exchange of goods.

• Trade barrier

• Trade surplus

• Trade deficit

• Comparative advantage