trade balance

exports - imports

trade surplus

exports > imports

trade deficit

imports > exports


goods produced abroad and sold domestically


goods produced domestically and sold abroad


Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

negative externalities

by-products of production or consumption that impose costs on third parties
example: pollution, traffic, etc.

positive externalities

by-products of consumption or production that benefit third parties
example: vaccinations, etc.

public goods and services

goods and services provided by the government through taxes; benefits public
example: military, healthcare, education, roads, parks, etc.


decreases in GDP for two consecutive quarters; (6 months in a row)


recession longing longer than two or more years

business cycles

overtime GDP expands and contracts repeatedly

government spending

includes spending by all levels of government on final goods and services

short run

the time period in which at least one input is fixed

long run

the time period in which all inputs can be varied

circular flow model

a simplified representation of how the economy's transactions work together