KNOW FOR ECON CHALLENGE!

Brain draina significant emigration of educated or talented individuals.

Capital flightwhen assets or monetary funds rapidly flow out of a country.
Efficiency wagesabove-equilibrium wages paid by firms to increase worker productivity.
Embargoa government order that restricts commerce or exchange within a specified country
Giffen gooda good for which demand increases as the price increases and demand falls when
the price falls. A Giffen good has an upward-sloping demand curve and is typically an inferior
product that does not have easily available substitutes. As a result, the income effect dominates
the substitution effect.
International Monetary Fund (IMF)an international organization of 188 countries that work
to foster global monetary cooperation, secure financial stability, and facilitate international trade.
IMF currency: Special Drawing Rights
Pareto efficiencya state of allocation of resources in which it is impossible to make any one
individual better off without making at least one individual worse off.
Pigovian tax (Arthur Pigou)a tax levied on any market activity that generates negative
externalities.
Sherman Anti-Trust Acta landmark 1890 U.S. legislation which outlawed trusts to increase
economic competitiveness.
Smoot-Hawley Tariff ActA U.S. law enacted in 1930 which caused an increase in import
duties by as much as 50%. The goal was to increase U.S. farmer protection against agricultural
imports. In retaliation, other countries also increase their tariffs. As a result, international trade
declined drastically.
Voluntary (export) restrainta government-imposed limit on the quantity of goods that can be
exported to a specified country.
 KNOW FOR ECON CHALLENGE!
Autarkyeconomic independence (lack of trade).
The Clayton Actpassed in 1914 to prohibit mergers and acquisitions if they are intended to
create a monopoly.
Compensating differentialterm used to describe the difference in wages that arises to offset
the nonmonetary characteristics of different jobs.
Federal Trade Commissionestablished in 1914 to promote consumer protection and
elimination and prevention of anti-competitive business practices.
Fischer effectthe term for the relationship between nominal interest rate, real interest rate, and
inflation.
Gini coefficient (or Gini index)a measurement of the income distribution of a countrys
residents. This number, which ranges between 0 and 1, helps define the gap between the rich and
the poor, with 0 representing perfect equality and 1 representing perfect inequality.
Laffer curvea representation of the relationship between rates of taxation and the resulting
levels of government revenue. The curve suggests that, as taxes increase, tax revenue also
increases. However, after a certain point, higher tax rates would cause people not to work as hard
or not at all, reducing tax revenue.
Liquidity trapa situation in which interest rates are low and savings rates are high, making
monetary policy ineffective.
Malthuseconomist who thought population growth would outgrow food growth (society needs
population control)
Misery index (Arthur Okun)the sum of a countrys unemployment rate with its inflation rate.
Quantitative easingan unconventional monetary policy in which a central bank purchases
government securities or other securities in order to lower interest rates and increase the money
supply. Usually done in a severe recession.
Rational expectations theory (Robert Lucas; Nobel Prize)economic idea that the people in
the economy make choices based on their rational outlook. The theory suggests that the current
expectations in the economy are equivalent to what the future state of the economy will be.
Sacrifice ratiorelates GDP and inflation. Measures the costs of lower production as a change
of the percentage in inflation.
WTOinternational organization that handles disputes over quotas and tariffs. Grew out of the
GATT accords.