Economics, 3rd Edition

catch-up effect 

the property whereby countries that start off 

poor tend to grow more rapidly than countries that start off rich

central bank 

an institution designed to regulate the quantity of 

money in the economy

choice set 

the set of alternatives available to the consumer

circular-flow diagram 

a visual model of the economy that 

shows how money and production inputs and outputs flow 

through markets among households and firms

classical dichotomy 

the theoretical separation of nominal and 

real variables

closed economy 

an economy that does not interact with other 

economies in the world

Coase theorem 

the proposition that if private parties can 

bargain without cost over the allocation of resources, they can 

solve the problem of externalities on their own