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Ability-to-pay principle
The idea that taxes should be levied on a person according to how well that person can shoulder that burden.
Absolute advantage
The ability to produce more of a good or service than another producer using the same amount of resources as that producer.
Absolute good
A value that cannot be traded off against other things that are highly valued by individuals. Many moral or ethical laws are considered to be absolute goods by the supporters (or advocates) of such laws.
Actual output (real GDP)
The amount that an economy actually produces, as measured by real GDP.
Adjustable-rate mortgage (ARM)
A mortgage that permits the lender to periodically adjust the interest rate on the basis of changes in a specified index.
Adjusted gross income
Gross income minus specific adjustments.
Adverse selection
The tendency of insurance to be purchased by those most likely to make claims.
Advertising
Communication used by businesses to persuade consumers to buy a good or service.
Agency debt
Direct debt obligations issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, which are government-sponsored enterprises (GSEs).
Aggregate demand curve
A graphical depiction of the amounts of real output (gross domestic product [GDP]) that buyers collectively desire to purchase at each possible price level.
Aggregate supply curve
A graphical depiction of the amounts of real output (gross domestic product [GDP]) that businesses will choose to produce at each possible price level.
Algorithm
A process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer.
Alt-A (Alternative A) mortgage
A non-standard mortgage owed by a borrower characterized by a strong credit history but with fewer traditional features--for example, reduced documentation, low down payment, or non-owner occupier.
Alternatives
The different possibilities to choose from in a given situation.
Annual percentage rate (APR)
The percentage cost of credit on an annual basis and the total cost of credit to the consumer. APR combines the interest paid over the life of the loan and all fees that are paid up front.
Annuity
A series of fixed payments of the same amount paid at regular intervals (i.e., every week, month, or pay period) over a specified period of time.
Annuity equation
FV = (A/i)[(1+i)n - 1], where: FV = Future value is the amount that's not known but will be solved in the calculation. It's the amount wanted in the future. A = Annuity; annuities are the initial and subsequent payments (which must be the same amount). i = Interest rate, which has a great effect on future value. The interest rate in the formula must be written in decimal form, such as 0.03 instead of 3%. n = This is the number of periods, where "n" is the number of equal deposits that will be made.
Appreciation
An increase in value. Currency appreciation is an increase in the value of one currency relative to another.
Appropriation act
A law allowing federal programs or agencies to borrow money and make payments from the Treasury. Congress considers regular appropriation acts annually. These acts fund federal government operations for the coming fiscal year.
Appropriations
Legal authority provided by Congress to federal agencies to spend funds from the U.S. Treasury.
Arbitrage
The simultaneous purchase and sale of a good in order to profit from a difference in price.
Asset
A resource with economic value that an individual, corporation, or country owns with the expectation that it will provide future benefits.
Asset-backed commercial paper (ABCP)
Short-term debt that is typically limited to a fixed maturity of between 1 and 270 days. The proceeds of ABCP issuance are used primarily to purchase various assets, such as trade receivables, consumer debt receivables, auto and equipment loan leases, and collateralized debt obligations. (See also: Commercial paper.)
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)
A Federal Reserve lending facility that provides funding to U.S. depository institutions and bank holding companies to finance their purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds under certain conditions. The AMLF was closed on February 1, 2010.
Asset-backed security (ABS)
In general, a money or capital market instrument, usually marketable (that is, transferable to third-parties in market transactions), that has specific financial assets generating the cash flow from which the instrument will be paid. (See also: Commercial mortgage-backed security and Residential mortgage-backed security.)
Asymmetric information
A situation in which one party to an economic transaction has less information than the other party .
Auction
A sale of property to the highest bidder.
Automated teller machine (ATM) card
A form of debit card used in a cash machine to access an account by using a code or personal identification number.
Automatic stabilizers
A standing policy that activates automatically without intervention, usually during a recession.
Automatic transfer
An online payment that is automatically deducted from the account balance on a recurring basis.
Automation
Automatically controlled operation of an apparatus, process, or system by mechanical or electronic devices that take the place of human labor.