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Balance of Trade; Trade Deficit and Trade Surplus definitions

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  • Open Economy
    A system where goods and services are exchanged with other countries, allowing for both imports and exports.
  • Closed Economy
    A system that restricts trade with other countries, relying solely on domestic production and consumption.
  • Export
    Goods and services sold to foreign countries, representing domestic production consumed abroad.
  • Import
    Goods and services purchased from foreign countries, reflecting external production consumed domestically.
  • Trade Surplus
    A situation where the value of goods and services sold abroad exceeds those bought from other countries.
  • Trade Deficit
    A condition where the value of goods and services purchased from abroad surpasses those sold to other countries.
  • Balance of Trade
    The difference between the value of exports and imports, indicating whether a country has a surplus or deficit.
  • Comparative Advantage
    A principle where countries specialize in producing goods with lower opportunity costs, enhancing global efficiency.
  • Opportunity Cost
    The value of the next best alternative forgone when choosing to produce one good over another.
  • Consumption
    The use of goods and services by households or the economy, often linked to current output and trade patterns.
  • Saving
    The portion of income not spent on current consumption, often indicating less reliance on imports.
  • Investment
    Allocation of current resources to increase future production, such as building factories or developing technology.
  • Economic Investment
    Spending on assets like factories or machinery to boost future output, distinct from financial investments.
  • Financial Investment
    Allocation of funds to assets like stocks or bonds, typically aimed at earning returns rather than increasing output.
  • Research and Development
    Activities focused on creating new technologies or processes to enhance future productivity and output.