Dependence of the equilibrium position of a system on what happens during the process of dynamic adjustment. This undermines the traditional distinction between comparative statics and dynamics. comparative statics considers the new equilibrium of the economy after a change in some exogenous variable: this does not depend on the starting point. dynamics analyses what happens when the economy is not in equilibrium: this affects whether equilibrium is approached, and how fast, but the equilibrium position itself is taken to be independent of the process of getting there. Under hysteresis this dichotomy breaks down: events during the dynamic process of adjustment affect where the economy finishes up. The productive potential of an economy, for example, depends not only on its current stocks of capital and labour but also on recent economic history. The economy may be less productive after a slump than it would have been with the same stocks of capital and labour but a past history of full employment. Unemployment leads to atrophy of specialized skills and general enthusiasm for work; and depression involves close-downs of business organizations and losses of business contacts. A slump may thus have a permanent effect in lowering the economy's full-employment output. The practical importance of hysteresis is a matter of controversy.

• bottom line
• bound
• boundary, production possibility
• bounded rationality
• Bowley box
• box diagram
• boycott
• BP curve
• Brady Plan
• brain drain
• branch banking
• brand
• brand loyalty
• Brandt Report
• break-even
• break-up value
• Bretton Woods
• broad money
• broker
• brokerage
• bubble
• budget
• budget constraint
• budget deficit
• budgeting, zero-base