Global Economics Cheat Sheet

The core ideas of Global Economics distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/global-economics/cheatsheet

Quick Reference

Comparative Advantage

David Ricardo's principle that nations benefit from specializing in the production of goods for which they have the lowest opportunity cost, then trading with other countries. Even if one country is more efficient at producing everything, both nations gain from trade.

Balance of Payments

A comprehensive record of all economic transactions between residents of a country and the rest of the world over a given period. It comprises the current account (trade in goods and services, income, transfers), the capital account, and the financial account.

Exchange Rate

The price of one currency expressed in terms of another. Exchange rates can be floating (determined by market supply and demand), fixed (pegged to another currency), or managed (a hybrid where the central bank intervenes periodically).

Foreign Direct Investment (FDI)

An investment made by a firm or individual in one country into business interests in another country, typically involving establishing operations or acquiring tangible assets such as factories. FDI is distinguished from portfolio investment by the degree of control and long-term interest.

Gross Domestic Product (GDP)

The total monetary value of all finished goods and services produced within a country's borders in a specific time period. GDP is the most widely used measure of a nation's economic output and is calculated using expenditure, income, or production approaches.

Trade Deficit and Surplus

A trade deficit occurs when a country imports more goods and services than it exports; a trade surplus is the opposite. Persistent deficits may signal strong domestic demand or a lack of competitiveness, while surpluses can reflect high savings rates or export-oriented policies.

Purchasing Power Parity (PPP)

An economic theory that adjusts exchange rates so that an identical basket of goods in two countries costs the same. PPP is used to compare living standards and economic productivity across nations more accurately than nominal exchange rates alone.

Tariffs and Trade Barriers

Tariffs are taxes imposed on imported goods, raising their price to protect domestic industries. Non-tariff barriers include quotas, subsidies, regulatory standards, and administrative requirements that restrict or distort international trade.

Globalization

The increasing integration and interdependence of national economies through cross-border flows of trade, investment, technology, information, and labor. Globalization has accelerated since the mid-twentieth century due to reductions in transportation costs, trade barriers, and communication costs.

Monetary Policy in an Open Economy

Central bank actions—such as setting interest rates and managing the money supply—that have international spillover effects. In an open economy, raising interest rates can attract foreign capital and appreciate the domestic currency, affecting trade competitiveness and capital flows.

Key Terms at a Glance

Absolute Advantage:The ability of a country to produce a good using fewer resources than another country.

Balance of Payments:A comprehensive record of all economic transactions between a country and the rest of the world.

Bretton Woods System:The post-World War II international monetary system (1944-1971) based on fixed exchange rates pegged to the U.S. dollar.

Capital Account:The component of the balance of payments recording transfers of capital assets and non-produced, non-financial assets between countries.

Comparative Advantage:The ability of a country to produce a good at a lower opportunity cost than another country.

Current Account:The balance of payments component that records trade in goods and services, net income, and net current transfers.

Dutch Disease:The negative impact on other economic sectors when a booming resource sector appreciates the currency and reduces competitiveness.

Exchange Rate:The price of one currency expressed in terms of another currency.

Foreign Direct Investment:An investment involving lasting interest and control in a business enterprise in a foreign country.

Free Trade Agreement:A treaty between two or more countries to reduce or eliminate barriers to trade in goods and services.

Globalization:The increasing integration of economies worldwide through trade, investment, technology, and migration.

Gross Domestic Product:The total market value of all finished goods and services produced within a country's borders in a specific period.

Heckscher-Ohlin Model:A trade theory predicting that countries export goods that use their abundant factors of production intensively.

Infant Industry Argument:The justification for temporarily protecting new industries from foreign competition until they can compete independently.

International Monetary Fund:An international organization that promotes monetary cooperation, financial stability, and provides emergency lending to member countries.

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