Glossary

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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.

  • Aggregate demand curve

    A graphical depiction of the amounts of real output (gross domestic product or 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 or 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.

  • 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 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.

  • 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.

  • 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.

  • Balance of trade

    The difference between a country's total exports and total imports. Also known as "net exports."

  • Balanced budget

    Occurs when the federal government's expenditures on programs equal the amount of tax revenue collected.

  • Bank account register

    A tool in which an account holder lists his or her initial balance in an account and then records all debits and credits in order to maintain an accurate record of account activity and an accurate balance.

  • Bank failure

    Occurs when banks are unable to meet depositors' demands for their money.

  • Bank panic

    Occurs when a bank run begins at one bank and spreads to others, causing people to lose confidence in banks.

  • Bank reserves

    The amount of deposits not loaned out by banks.

  • Bank run

    Occurs when many depositors rush to the bank to withdraw their money at the same time.

  • Bank statement

    A statement given to account holders by a bank or credit union to keep them informed of all transactions they made during the statement period. These statements are sent on a regular basis or posted online.

  • Bank suspensions

    Banks closed to the public because of financial difficulties.

  • Bankruptcy

    A legal process for declaring that a person is unable to pay their debts. The process may involve a court-supervised process of selling the bankrupt person's belongings to pay part of the debts owed to creditors.

  • Banks

    Businesses that accept deposits and make loans.

  • Barter

    Trading goods and services for other goods and services without using money.

  • Benefits

    Things favorable to a decision-maker.

  • Binary map

    A map with regions divided into two classes.

  • Board of Governors

    A federal government agency that is the centralized component of the Federal Reserve System. These governors guide the policy actions of the Federal Reserve System.

  • Bond

    A certificate of indebtedness issued by a government or corporation.

  • Borrowing

    Taking money with a promise to repay the money in the future.

  • Boycott

    A method of protest where people show a business that they are angry by refusing to buy the goods or services it produces.

  • Budget

    An itemized summary of probable income and expenses for a given period. A budget is a plan for managing income, spending and saving during a given period of time.

  • Budget deficit

    Government expenditures exceed revenues.

  • Bureau of Labor Statistics (BLS)

    A research agency of the United States Department of Labor that compiles statistics on employment, unemployment and other economic data.

  • Business cycle

    The fluctuating levels of economic activity in an economy over a period of time measured from the beginning of one recession to the beginning of the next.

  • Capacity

    A borrower's ability to repay debt.

  • Capital gains

    A profit from the sale of financial investments.

  • Capital resources

    Goods that have been produced and are used to produce other goods and services. They are used over and over again in the production process. Also called capital goods and physical capital.

  • Central bank

    An institution that oversees and regulates the banking system and quantity of money in the economy.

  • Certificate of deposit (CD)

    A savings alternative in which money is left on deposit for a stated period of time to earn a specific interest rate.

  • Character

    A borrower's reputation for paying bills and debts based on past behavior.

  • Characteristics of money

    Important features money should have. Money should be portable, durable, divisible, generally acceptable and relatively scarce.

  • Check

    A printed form directing a bank to withdraw money from an account and pay it to another account.

  • Checkable deposits

    Deposits in accounts against which checks can be written.

  • Check-cashing services

    Businesses that provide services such as cashing all types of checks, including payroll, insurance, tax refund, settlement, and government and Social Security payments. These businesses may also provide other services, such as payday loans, money orders, and money wires.

  • Checking account

    An account held at a bank or credit union in which account owners deposit funds. Account owners have the privilege of writing checks on their accounts and are able to use ATM cards and debit cards to access funds.

  • Choice

    A decision made between two or more possibilities or alternatives.

  • Choropleth map

    A map that uses shading, color, or symbols to convey a quantity or property for an area.

  • Clearinghouse

    An institution where mutual claims and accounts are settled, as between banks.

  • Closed economy

    An economy that does not interact with other economies.

  • Coin

    Money, usually minted from some combination of metals.

  • Coincidence of wants

    Each participant in an exchange is willing to trade what he or she has in exchange for what the other participant is willing to trade.

  • Collateral

    Property required by a lender and offered by a borrower as a guarantee of payment on a loan. Also, a borrower's savings, investments or the value of the asset purchased that can be seized if the borrower fails to repay a debt.

  • Collateral (elementary)

    Something of value that a bank is able to keep if a borrower fails to repay a loan.

  • Commercial paper

    A short-term, unsecured promissory note issued by an industrial or commercial firm, a financial company, or a foreign government. Typically, maturity is 90 to 180 days.

  • Comparative advantage

    The ability to produce at a lower opportunity cost than another producer.

  • Complement (resources)

    Productive inputs that are used jointly with other inputs in the production process.

  • Compound interest

    Interest computed on the sum of the original principal and accrued interest.

  • Congress

    The legislative body of the U.S. government, consisting of the Senate and the House of Representatives.

  • Consumer confidence

    A measure of how consumers feel about the economy, considered an indicator of consumers' spending and saving decisions.

  • Consumer goods

    Goods and services that are used for current consumption.

  • Consumer price index (CPI)

    A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

  • Consumers

    People who buy goods and services to satisfy their wants.

  • Contract

    An exchange, promise or agreement between two parties that is enforceable by law. For example, a car buyer agrees to pay the amount financed at an agreed upon interest rate for the length of the contract.

  • Contraction

    A period when real GDP declines; a period of economic decline.

  • Contractionary monetary policy

    Actions taken by the Federal Reserve to decrease the growth of the money supply and the amount of credit available.

  • Core consumer price index

    The consumer price index (CPI) excluding food and energy.

  • Corporation

    A company owned by shareholders.

  • Cost of living

    The amount of income needed to achieve a given living standard.

  • Costs

    Things unfavorable to a decision-maker.

  • Credit

    The granting of money or something else of value in exchange for a promise of future repayment.

  • Credit card

    Cards that represent an agreement between a lender—the institution issuing the card—and the cardholder. Credit cards may be used repeatedly to buy products or services or to borrow money on credit. Credit cards are issued by banks, savings and loan associations, retail stores, and other businesses.

  • Credit history

    A person's payment activity over a period of time.

  • Credit report

    A loan and bill payment history kept by a credit bureau and used by financial institutions and other potential creditors to determine the likelihood that a future debt will be repaid.

  • Credit reporting bureau

    An organization that compiles credit information on individuals and businesses and makes it available to businesses for a fee.

  • Credit responsibilities

    Refers to the actions or behaviors in which people should engage when they use credit.

  • Credit rights

    Refers to the protections put in place by law to help people obtain and maintain credit.

  • Credit score

    A number based on information in a credit report, which indicates a person's credit risk.

  • Credit Union

    A nonprofit financial institution that is owned by its members.

  • Creditor

    A person, financial institution or other business that lends money.

  • Credits

    Additions or deposits to an account. In a bank account register, credits are added to the balance.

  • Criteria

    A set of standards to consider when choosing among alternatives.

  • Criteria (elementary)

    Things that are really important to think about when making a decision.

  • Crowding out

    A condition where government enters the loanable funds market and thereby increases the interest rate beyond what is feasible for private sector borrowing.

  • Currency

    Money, usually made from some type of paper-like material.

  • Current population survey

    A statistical survey carried out by the U.S. Bureau of Labor Statistics.

  • Cyclical unemployment

    Unemployment associated with recessions in the business cycle.

  • Debit card

    A plastic card similar to a credit card that allows money to be withdrawn or payments made directly from the holder's bank account.

  • Debits

    Charges to or withdrawals from an account. In a bank account register, debits are subtracted from the balance.

  • Debt

    Money owed in exchange for loans or for goods or services purchased with credit.

  • Decision-making

    Deciding among choices (alternatives or options).

  • Decision-making grid

    A table used to evaluate alternatives based on criteria for the purpose of making a decision.

  • Default

    Default is the failure to promptly pay interest or principal when due.

  • Deferral

    Postponed until a later time.

  • Deflation

    A general, sustained downward movement of prices for goods and services in an economy.

  • Delinquency rate

    In general it refers to a percentage determined by dividing the number of loans that have delinquent payments by the number of total loans.

  • Delinquent

    Failing to make timely payments under a loan or other credit agreement.

  • Demand

    The quantity of a good or service that buyers are willing and able to buy at all possible prices during a certain time period.

  • Depository institution

    A financial institution such as a savings bank, commercial bank, savings and loan association, or credit union that is legally allowed to accept monetary deposits from consumers.

  • Depreciation

    A decrease in value. Currency depreciation is a decrease in the value of one currency relative to another.

  • Depression

    A severe and long-lasting economic downturn that is worse and deeper than a recession; a severe reduction in gross domestic product (GDP).

  • Determinants of demand

    Factors that cause the demand curve to shift, such as changes in consumer income, consumer tastes and preferences, prices of related goods, number of buyers in the market, and consumer expectations.

  • Determinants of supply

    Factors that cause the supply curve to shift, such as changes in input prices, taxes or subsidies, technology, producer expectations, and the number of sellers.

  • Direct deposit

    An electronic transaction in which money is deposited directly into a payee's bank account from a payer's bank account.

  • Discount rate

    The interest rate charged by the Federal Reserve to banks for loans obtained through the Fed's discount window.

  • Discouraged worker

    Someone who is not working and is not looking for work because of a belief that there are no jobs available to him or her.

  • Discretionary income

    The portion of personal income available for spending after taxes and basic essentials have been deducted.

  • Discretionary spending

    Government spending authorized by Congress on an annual basis.

  • Disinflation

    A decrease in the inflation rate or a slowdown in the upward movement of prices for goods and services in the economy.

  • Disposable income

    The amount of a person's paycheck that is available to spend or save.

  • Dissaving

    To consume more than income; essentially, the opposite of saving.

  • Diversification

    Investment in various financial instruments in order to reduce risk.

  • Divisible

    Easily divided into smaller amounts.

  • Division of labor

    An approach to completing a complex task that breaks the project into a number of smaller, simpler tasks, which are assigned to individuals who generally perform only these duties.

  • Down payment

    A sum of money put toward the purchase price to reduce the amount of money borrowed.

  • Dual mandate

    The Federal Reserve's responsibility to use monetary policy to promote maximum employment and stable prices.

  • Durable

    Something that is long lasting.

  • Earned income tax credit

    A refundable federal tax credit for low-income working people designed to reduce poverty and encourage labor force participation.

  • Earnings

    Money or income received in exchange for labor or services.

  • Economic equality

    A more equal distribution of goods and services to citizens. Also known as economic equity.

  • Economic equity

    A more equal distribution of goods and services to citizens. Also known as economic equality.

  • Economic growth

    A sustained rise over time in a nation's production of goods and services.

  • Economic indicator

    Statistical data used to determine the health of the economy.

  • Economic models

    Simple depictions of complex ideas.

  • Economic wants

    Desires that can be satisfied by consuming goods and services. Also known as wants.

  • Economy

    A system of production and distribution of resources, goods, and services.

  • Educational attainment

    Level of education a student completes (high school, college, graduate).

  • Elastic currency

    Currency whose supply can be increased or decreased to meet the demands of the economy, and used by a central bank to provide financial stability and achieve economic goals.

  • Elastic demand

    The type of demand that exists when the percentage change in quantity demanded is greater than the percentage change in price; that is, consumers are very sensitive to a change in the price of a good or service.

  • Elasticity of demand

    The ratio of the percentage change in quantity demanded of a good or service to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a good or service. Many factors influence demand elasticity, including the availability of close substitutes, whether the good is a necessity or a luxury, the definition of a market, the relative purchase size, and the time horizon.

  • Elements of a contract

    Competent parties, consideration and mutual agreement are the elements of a contract that must be present to make the contract legal and enforceable. Competent parties are individuals involved in a contract who must be able to understand the conditions of the contract. Consideration refers to the fact that each party of a contract gives up something in exchange for what the other party is providing. Mutual agreement means that each party to the contract must be clear about the essential details, rights and obligations of the contract.

  • Employed

    People 16 years and older who have jobs.

  • Employment rate

    The percentage of the labor force that is employed.

  • Entrepreneurs

    Individuals who are willing to take risks in order to develop new products and start new business. They recognize opportunities, enjoy working for themselves and accept challenges.

  • Entrepreneurship

    A characteristic of people who assume the risk of organizing productive resources to produce goods and services.

  • Equilibrium price

    The price at which quantity supplied and quantity demanded are equal. The point at which the supply and demand curves intersect.

  • Equilibrium wage

    The wage at which the quantity of labor supplied and quantity of labor demanded are equal.

  • Excess reserves

    Amount of funds held by a depository institution in its account at a Federal Reserve Bank in excess of its required reserve balance and its contractual clearing balance.

  • Exchange

    Trading goods and services with people for other goods and services or for money.

  • Exchange rate

    The price of one country's currency in terms of another country's currency.

  • Exempt (from withholding)

    Free from withholding of federal income tax. A person must meet certain income, tax liability and dependency criteria. This does not exempt a person from other kinds of tax withholding, such as the Social Security tax.

  • Exemption

    Amount that taxpayers can claim for themselves, their spouses and eligible dependents. There are two types of exemptions: personal and dependency. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year.

  • Expansion

    A period when real GDP increases; a period of economic growth.

  • Expansionary monetary policy

    Actions taken by the Federal Reserve to increase the growth of the money supply and the amount of credit available.

  • Expenditures

    Money spent to buy goods and services.

  • Expenses

    The costs people incur for goods and services. Expenses are often categorized as fixed, variable, and periodic. Fixed expenses are those that occur each month in a regular amount, such as rent, car payments, and mortgage payments. Variable expenses are those that change from one time period to the next, such as food, clothing, gasoline, and entertainment. Periodic expenses are those that occur several times a year, such as car insurance and life insurance payments.

  • Explicit cost

    A cost that involves actually laying out money. A direct expense that a business incurs, such as rent, salaries, wages, or utility bills.

  • Exports

    Goods or services that are produced domestically but sold abroad.

  • Factors of production

    The natural resources, human resources and capital resources that are available to make goods and services. Also known as productive resources.

  • Federal Deposit Insurance Corp. (FDIC)

    The FDIC is an agency of the U.S. government that insures deposits in banks and thrift institutions, supervises the risks associated with these insured funds, and limits the repercussions on the economy when a bank or thrift institution fails.

  • Federal funds rate

    The interest rate at which a depository institution lends funds that are immediately available to another depository institution overnight.

  • Federal income tax

    The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law enforcement and interest on the national debt.

  • Federal Insurance Contributions Act (FICA) tax

    A tax or required contribution that most workers and employers pay. FICA is a payroll tax used to fund Social Security and Medicare.

  • Federal Open Market Committee (FOMC)

    The Federal Reserve's chief body for conducting monetary policy. The FOMC consists of the Board of Governors and five Federal Reserve bank presidents. Fed presidents rotate on and off of the committee at regular intervals.

  • Federal Reserve Act

    The 1913 act of congress establishing the Federal Reserve System.

  • Federal Reserve bank

    One of 12 regional banks providing services to commercial banks, serving as fiscal agents for the U.S. government, and conducting economic research on its region and the nation.

  • Federal Reserve districts

    Twelve regions in the United States that are represented by a reserve bank.

  • Federal Reserve System

    The central bank system of the United States.

  • Federal student loan

    A loan provided by the government to postsecondary students and their parents to assist in paying for education.

  • Federal Trade Commission

    An independent agency of the United States federal government that maintains fair and free competition, enforces federal antitrust laws, and educates the public about identity theft.

  • Fees

    Money charged to review your application for credit or to service your credit account, such as maintenance fees or late fees. Banks often charge fees for servicing bank accounts, including overdraft fees and charges for using a non-bank ATM.

  • Fiat money

    A substance or device used as money, having no intrinsic value (no value of its own), or representational value (not representing anything of value, such as gold).

  • File a return

    To mail or transmit a taxpayer's information in specified format about income and tax liability. The return can be filed on paper, electronically or by telephone to an IRS service center.

  • Financial investment

    Placing money in a savings account or in any number of financial assets, such as stocks, bonds or mutual funds, with the intention of making a financial gain.

  • Financial literacy

    Having knowledge of financial matters and applying that knowledge to one's life.

  • Fiscal agent

    A person or organization serving as another's financial representative.

  • Fiscal policy

    Spending and taxing policies of the federal government to influence the economy.

  • Flat tax

    A tax system in which all levels of income are taxed at the same rate.

  • Flexible exchange rate

    A system in which supply and demand determine exchange rates.

  • Food stamps

    The Supplemental Nutrition Assistance Program (SNAP) allowing low-income individuals to buy nutritious food and health-care products.

  • Forbearance

    The temporary suspension or reduction of monthly loan payments, usually up to one year.

  • Foreclose

    To take possession of a mortgaged property as a result of the borrower's failure to make mortgage payments.

  • Fractional reserve banking system

    A banking system in which the amount of reserves that banks hold is less than the value of their customers' deposits.

  • Frequency

    The intervals between occurrences. In macroeconomics it is common for data to be released monthly, quarterly, semiannually, or annually.

  • Frictional unemployment

    Unemployment that results when people are new to the job market, including recent graduates, or are transitioning from one job to another.

  • Full employment

    The lowest possible unemployment rate in a growing economy with all factors of production used as efficiently as possible.

  • Full-time employment

    Although defined by the U.S. Bureau of Labor Statistics as employment of 35 hours or more in a week, the matter of "full-time employment" is generally determined by the employer.

  • Functions of money

    Activities that can be carried out through the use of money. Activities include medium of exchange, unit of account and store of value.

  • Future value

    The value of an asset or cash at a specified date in the future that is equal in value to a specified sum today.

  • Future value equation

    FV=PV (1+i)n, 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.

    PV = Present value is money currently held or the amount of money that will be earning interest.

    i = Interest rate has a great effect on future value. The interest rate in this formula must be written in decimal form, such as 0.03 instead of 3%.

    n = This is the number of periods (such as years) money is saved and interest is applied. If money were to be saved for 3, 5, 7 or 10 years, then 3, 5,7, or 10 would be "n" in the calculation.

  • Gainful employment

    A job, especially one taken after graduation, that is suited to the ability and potentiality of the one employed.

  • Generally acceptable (money)

    People will take an item as payment for their work or as payment for goods and services.

  • Gold standard

    The ability to exchange dollars for gold at a fixed price.

  • Goods

    Objects that satisfy people's wants.

  • Government debt

    The sum of accumulated budget deficits. Also known as national debt.

  • Government expenditures

    Purchases of goods and services by government.

  • Government Securities

    Bonds, notes and other debt instruments sold by a government to finance its expenditures.

  • Government securities auction

    A sale of government securities in which competitive bidding determines their yield.

  • Gross domestic product (GDP)

    The total market value, expressed in dollars, of all final goods and services produced in an economy in a given year.

  • Gross pay

    The amount people earn per pay period before any deductions or taxes are paid.

  • Human capital

    The knowledge and skills that people obtain through education, experience and training.

  • Human resources

    The quantity and quality of human effort directed toward producing goods and services. Also known as labor.

  • Human resources (elementary)

    People who do mental and/or physical work to produce goods and services.

  • Hyperinflation

    A very rapid rise in the overall price level; an extremely high rate of inflation.

  • Implicit cost

    An indirect cost that does not require an outlay of money; it is measured by the value, in dollar terms, of foregone benefits.

  • Imports

    Goods or services that are produced abroad but sold domestically.

  • Incentives

    Perceived benefits that encourage certain behaviors.

  • Incentives (elementary)

    Actions, awards and rewards that determine the choices people make.

  • Income

    The payment people receive for providing resources in the marketplace. When people work, they provide human resources (labor) and in exchange they receive income in the form of wages or salaries. People also earn income in the forms of rent, profit, and interest.

  • Income (elementary)

    Payment people earn for the work they do.

  • Income tax

    Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes).

  • Inefficiency

    A condition that results when production of goods and services involves wasted resources or when it is possible to reallocate resources in a way that would generate greater consumer satisfaction.

  • Inelastic demand

    The type of demand that exists when the percentage change in quantity demanded is less than the percentage change in price; that is, consumers are not very sensitive to a change in the price of a good or service.

  • Inflation

    A general, sustained upward movement of prices for goods and services in an economy.

  • Inflation rate

    The percent change in price level determined by comparing the percentage increase or decrease in the price level of goods and services from one time period to another.

  • Infrastructure

    Basic structures, including buildings and facilities such as roads, bridges, and waste disposal systems.

  • Inputs

    Materials and resources used to produce goods and services.

  • Institutions

    The "rules of the game" that structure economic incentives.

  • Interest

    The price of using someone else's money. When people place their money in a bank, the bank uses the money to make loans to others. In return, the bank pays interest to the account holder. Those who borrow from banks or other organizations pay interest for the use of the money borrowed.

  • Interest (elementary)

    Money paid to customers for keeping their money at the bank.

  • Interest rate

    The percentage of the amount of a loan that is charged for a loan. Also, the percentage paid on a savings account.

  • Interest rate effect

    The effect on consumer spending and investment spending caused by a change in the aggregate price level on the purchasing power of consumers' and firms' money holdings.

  • Intermediary

    One who stands between two parties to facilitate a transaction; a mediator.

  • Intermediate good

    A man-made good that is used to produce another good or service, becoming part of that good or service.

  • Internal Revenue Service (IRS)

    The federal agency that collects income taxes in the United States.

  • Internalizing the externality

    Altering incentives so that individuals and firms incorporate the costs and benefits that have been shifted to third parties into their decision-making.

  • Investment

    The purchase of physical capital goods (e.g., buildings, tools and equipment) that are used to produce goods and services.

  • Investment in human capital

    The efforts people put forth to acquire human capital. These efforts include education, experience, and training.

  • Keynesian multiplier effect

    An effect where an increase (or decrease) in a component of aggregate demand (i.e., consumption, investment, or government spending) produces an increase (or decrease) in national income that is greater than the initial increase (or decrease) in the component. This greater-than-proportional change in national income is the result of chain reactions that generate more (or less) activity than the original increase (or decrease).

  • Labor

    The quantity and quality of human effort directed toward producing goods and services. Also known as human resources.

  • Labor force

    The total number of workers, including both the employed and the unemployed.

  • Labor market

    The exchange of labor by workers who want to sell labor and businesses that want to purchase labor.

  • Lags

    The time between the recognition of an economic problem, the negotiation and implementation of a solution, and the realization of results in the economy.

  • Law of demand

    As the price of a good or service rises, the quantity demanded of that good or service falls. Likewise, as the price of a good or service falls, the quantity demanded of that good or service rises.

  • Law of supply

    As the price of a good or service rises, the quantity supplied of that good or service rises. Likewise, as the price of a good or service falls, the quantity supplied of that good or service falls.

  • Liability

    Money owed; debt.

  • Lien

    The legal right to take or sell property as security for a debt.

  • Liquid asset

    An asset that is easily convertible to cash with relatively little loss of value in the conversion process.

  • Liquidity

    The quality that makes an asset easily convertible into cash with relatively little loss of value in the conversion process.

  • Loan

    A sum of money provided temporarily on the condition that the amount borrowed be repaid, usually with interest.

  • Loanable funds

    Money made available to borrowers through the actions of savers.

  • Loanable funds market

    A virtual market that consists of 1) borrowers, including money demanders, consumers and firms who want loans to buy goods and services or invest in capital or inventory; and 2) savers, such as money suppliers, households and firms who save money. It is the market in which the supply and demand for loanable funds determines the interest rate.

  • Long-term savings goals

    Goods or services you want to buy in a year or longer.

  • Macroeconomics

    The study of the broad economy, such as how an economy grows and how growth is maintained.

  • Mandatory spending

    Government spending required by current law.

  • Market price

    The price at which buyers and sellers trade a good or service in the marketplace; where the quantity demanded equals the quantity supplied. Also known as the market-clearing price or the equilibrium price.

  • Means-tested

    Programs in which eligibility depends on the level of one's current income or assets.

  • Median

    The value in an ordered set of values below and above which there is an equal number of values; the number that divides numerically ordered data into two equal halves; the middle number of a set of numbers.

  • Median value

    The middle number of a set of numbers; the number that divides numerically ordered data into two equal halves.

  • Medicaid

    A jointly administered federal and state health care program for low-income people.

  • Medicare

    A federal health care program that pays for certain medical and hospital costs for people aged 65 and older (and for some people who are under the age of 65 and disabled); part of Social Security.

  • Medicare tax

    A payroll tax that is part of FICA, collected from most employees and employers to fund the hospital insurance provided under the Medicare system. Used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65.

  • Medium of exchange

    Anything that is generally acceptable in exchange for goods and services.

  • Menu costs

    The costs to a firm incurred as a result of changing prices. The term comes from the cost incurred for printing new menus when a restaurant raises prices.

  • Microeconomics

    The study of the markets that make up the broad economy.

  • Minimum wage

    The lowest wage that employers may legally pay for an hour of labor.

  • Monetary policy

    Central bank actions involving the use of interest rate or money supply tools to achieve such goals as maximum employment and stable prices.

  • Money

    Anything widely accepted in exchange for goods and services.

  • Money creation

    An increase in the money supply generated by the banking system through the lending of reserves.

  • Money neutrality

    An economic theory stating that, in the long run, changes in the money supply cause changes in variables, such as price and wages, but not in unemployment or real (or inflation-adjusted) variables, such as real GDP (gross domestic product) and real consumption.

  • Money supply

    The quantity of money available in an economy. The basic money supply in the United States consists of currency, coins and checking account (demand) deposits. Also known as money stock.

  • Monopolistic competition

    A market structure where many firms produce similar but not identical products.

  • Mortgage debt

    A debt owed for loans for homes and real estate.

  • Mutually beneficial trade

    In order for a trade to be mutually beneficial among each party involved, the price of the good or service must fall between the opportunity costs of producers involved in the trade. Importers will pay no more for goods or services than what it costs to produce them, while exporters will sell goods or services for no less than what it costs to produce them.

  • National debt

    The accumulation of budget deficits. Also known as government debt.

  • Natural rate of unemployment

    The rate of unemployment that does not contain cyclical unemployment.

  • Natural resources

    Things that occur naturally in and on the earth that are used to produce goods and services.

  • Negative externality

    A negative side effect that results when the production or consumption of a good or service affects the welfare of people who are not the parties directly involved in a market exchange.

  • Nest egg

    An amount of money saved for a special occasion, such as retirement or buying a house.

  • Net exports

    A component of gross domestic product (GDP), net exports are the result of U.S. exports minus U.S. imports.

  • Net pay

    Gross pay minus deductions and taxes.

  • Nominal

    Monetary values, wages, or prices, measured in current prices.

  • Nominal gross domestic product

    The total market value of all final goods and services produced in an economy in a given year, expressed using the current year's price for goods and services. Also known as current-dollar GDP.

  • Non-interest bearing account

    An account in which no interest is paid on the principal, which is the amount of deposit or account balance. Also called zero-interest account.

  • Non-liquid asset

    An asset that is not easily convertible into cash with relatively little loss of value in the conversion process.

  • Nonprofit school

    Any public school, including public colleges and schools not a part of the public school system, which operates with no intention of making a profit.

  • Open market operations

    The buying and selling of government securities through primary dealers by the Federal Reserve in order to influence the money supply.

  • Opportunity cost

    The value of the next-best alternative when a decision is made; it's what is given up.

  • Output gap

    The difference between potential output and actual output.

  • Output potential

    Points along the production possibilities frontier.

  • Outputs

    Goods and services that are produced.

  • Overdraft

    The result of an account holder authorizing a withdrawal through a check, ATM withdrawal, debit card purchase or electronic payment when the account does not have enough money to cover the transaction.

  • Overdraft fee

    The penalty associated with an overdraft.

  • Overdraft service

    Provided by financial institutions to generally approve and pay overdraft transactions when the account holder does not have enough funds to cover the transactions in return for a fee.

  • Paradox of thrift

    A controversial Keynesian economics theory, which proposes that if everyone tries to save more during a recession, then aggregate demand will fall. As a result, the theory argues everyone would grow poorer instead of richer due to the decreases in aggregate consumption, saving, earnings, and economic growth.

  • Patent

    A license that gives the inventor of a new product the exclusive right to sell it for a specific period of time.

  • Payday loan

    A small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. May also be called a paycheck advance or a payday advance.

  • Payroll deduction

    Amounts subtracted from gross pay.

  • Penalties

    Negative incentives that make people worse off.

  • Per capita

    Per person. Determined by dividing the total quantity by the total population.

  • Per capita gross domestic product

    Gross domestic product (GDP) divided by the total population of a country.

  • Per capita personal income

    The total income earned by individuals in a state, region or country during a year, divided by the population of the state, region or country.

  • Perfect competition

    A market in which there are many buyers and many sellers of an identical product.

  • Personal income

    The income that individuals receive from all sources including wages and salaries, dividends and interest, rents, profits, and transfer payments.

  • Personal saving rate

    The ratio of personal saving to disposable personal income; the fraction of income, after taxes, that is saved.

  • Phillips Curve

    An economic model indicating an inverse relationship between the rate of inflation and the rate of unemployment.

  • Physical capital

    Goods that have been produced and are used to produce other goods and services. They are used over and over again in the production process. Also called capital goods and capital resources.

  • Pigovian tax

    A tax used to correct for a negative externality.

  • Policy lags

    The time between the recognition of an economic problem, the negotiation and implementation of a solution, and the realization of results in the economy.

  • Portable

    Easy to carry.

  • Portfolio

    A list or collection of financial assets that an individual or company holds.

  • Potential output

    The real output (GDP) an economy can produce when it fully employs its available resources.

  • Poverty threshold

    The dollar amount the U.S. Census Bureau uses to determine a family's or person's poverty status.

  • Preferences

    An indication of our likes or dislikes; preferences help us make choices.

  • Present bias

    Choosing what makes one happy in the moment.

  • Present value

    Present value is the current value of a future sum of money, given a specified rate of return.

  • Present value equation

    PV=FV [1/(1+i)n, where:

    PV = Present value is the amount that's not known but will be solved in the calculations. It's the amount needed today to achieve a determined future goal.

    FV = Future value is the amount of money wanted in the future. It is the amount that will be reduced at a determined interest rate to calculate the present value.

    i = Interest rate, which has a great effect on present value. The interest rate in this formula must be written in decimal form, such as 0.03 instead of 3%.

    n = The number of interest payments during a specified time; the number of times interest is applied.

  • Price ceiling

    A government-mandated maximum price that can be charged for a good or service.

  • Price discrimination

    The practice of selling the same good or service at different prices to different customers.

  • Price floor

    A government-mandated minimum price that must be paid for a good or service.

  • Price stability

    A low and stable rate of inflation maintained over an extended period of time.

  • Principal

    The original amount of money deposited or invested, excluding any interest or dividends. Also refers to the original amount of a loan without any interest.

  • Private (or nonpublic) college

    A college owned and operated by an individual, religious institution, partnership, or a corporation other than the state, a subdivision of the state, or the Federal  government and that is supported primarily with nonpublic funds.

  • Private (or nonpublic) school

    A school owned and operated by an individual; religious institution; partnership; or a corporation other than the state, a subdivision of the state, or the federal government; and supported primarily with nonpublic funds.

  • Private good

    A good that once used by one person cannot be used by someone else. They are considered rival in consumption and/or excludable. A person can be excluded from using a private good.

  • Private, for-profit college

    A college managed and governed by private organizations or corporations with the goal of earning profit.

  • Producers

    People who make goods and services.

  • Production function

    The combination of inputs to produce outputs.

  • Production possibilities frontier

    A graphic representation of output combinations that can be produced given an economy's available resources and technology.

  • Productive capacity

    The maximum output an economy can produce with the current level of available resources.

  • Productive resources

    The natural resources, human resources and capital resources used to make goods and services. Also known as factors of production.

  • Productivity

    The ratio of output per worker per unit of time.

  • Profit

    The amount of revenue that remains after a business pays the costs of producing a good or service.

  • Progressive tax

    A tax in which high-income earners pay a larger fraction of their income in taxes than low-income earners do.

  • Public college

    A college that receives monetary support from public funds.

  • Public good

    A good that is non-rival and non-excludable. Use by one person does not prevent its consumption by others.

  • Public school

    A school that receives monetary support from public funds.

  • Purchasing power

    The amount of goods and services that a unit of currency can buy.

  • Quantitative easing

    A monetary policy in which a central bank makes large-scale asset purchases designed to bolster financial market conditions.

  • Quantity demanded

    The amount of a good or service that consumers are willing and able to buy at a specific price.

  • Quantity supplied

    The amount of a good or service that businesses are willing and able to sell at a specific price.

  • Quantity Theory of Money

    A theory that emphasizes the relationship between the money supply and the price level.

  • Quartile

    One part of a set of data divided into four equal parts.

  • Real

    Monetary values, wages, or prices, adjusted for inflation and measured in constant prices—that is, in prices of a given or base period. Real monetary values are obtained by adjusting nominal wages or prices with a price measure such as the CPI.

  • Real gross domestic product (GDP)

    The total market value of all final goods and services produced in an economy in a given year calculated by using a base year's price for goods and services; nominal gross domestic product (GDP) adjusted for inflation.

  • Real interest rate

    The price of borrowed money, adjusted for inflation.

  • Recession

    A period of declining real income and rising unemployment; significant decline in general economic activity extending over a period of time.

  • Relative price

    The cost of a good or service in terms of another good or service.

  • Relatively scarce

    An item that is scarce in relation to people's desire for it.

  • Rent

    The payment for natural resources.

  • Rent-to-own contract

    A contract that allows consumers to get immediate delivery on new furniture, appliances or other items. There is no down payment or credit check required. If the consumer keeps the rental item for a minimum amount of time, there is no penalty charged for returning it. If the renter misses a payment, the contract requires that he or she return the item.

  • Repossess

    To retake possession of something when the buyer fails to make payments.

  • Required reserves

    Funds that a depository institution is required to maintain in the form of vault cash, or—if vault cash is insufficient to meet the requirement—in the form of a balance maintained directly with a Reserve Bank or indirectly with a pass-through correspondent bank.

  • Reserve requirement

    The percentage of a bank's deposits it is required by law to hold.

  • Reserves (bank)

    The sum of cash that banks hold in their vaults and the deposits they maintain with Federal Reserve banks.

  • Return on Investment (ROI)

    A performance measure of the effectiveness of an investment. ROI is calculated as the net gain (gain from investment minus cost of investment) divided by the cost of investment.

  • Revenue

    Money received; income.

  • Revenue (government)

    The income received by government from taxes and other nontax sources.

  • Rewards

    Positive incentives that make people better off.

  • Risk

    The chance of loss.

  • Risk-reward relationship

    The idea that there is a direct relationship between risk of the loss of principal and the expected rate of return. The higher the risk of loss of principal for an investment, the greater the potential reward. Conversely, the lower the risk of loss of principal for an investment, the lower the potential reward.

  • Rule of 72

    A method to estimate the number of years it will take for a financial investment (or debt) to double its value (or cost). Divide 72 by the interest rate (percentage) to determine the approximate number of years it will take the investment (debt) to double its value (cost).

  • Rule of law

    Concept that holds that government and its officers must exercise their power according to established regulations and legal principles.

  • Salary

    Income earned for providing human resources (labor) in the market. Salaries are generally an annual amount paid monthly or bimonthly for a specified number of hours, usually 40 hours per week.

  • Save

    Keeping your money to spend in the future.

  • Saving

    Not spending on current consumption or taxes. Saving involves giving up some current consumption for future consumption.

  • Saving (elementary)

    Keeping some income to buy things in the future.

  • Savings

    The accumulation of money set aside for future spending.

  • Savings account

    An account with a bank or credit union in which people can deposit their money for future use and earn interest.

  • Savings goal

    A good or service that you want to buy in the future.

  • Savings plan

    A schedule listing tasks that, when completed, will allow a saver to reach a savings goal.

  • Scarcity

    The condition that exists because there are not enough resources to produce everyone's wants.

  • Search costs

    The financial opportunity costs consumers pay when searching for a counterparty in a transaction.

  • Seasonal unemployment

    Unemployment caused by changes in the weather or seasons.

  • Seasonally adjusted

    Data adjusted mathematically to remove the dips and bumps that occur due to seasonal events, such as extra retail workers hired for the holidays. Seasonal  adjustment removes the effects of events that follow a more or less regular pattern each year. These adjustments make it easier to observe the cyclical and other nonseasonal movements in a data series.

  • Secured loan

    A loan that is backed with collateral; a loan for which the lender requires and the borrower offers property as a guarantee of repayment.

  • Securities and Exchange Commission (SEC)

    The SEC is an independent U.S. government agency established by Congress to police and regulate the securities industry.

  • Self-interest

    The pursuit of personal gain.

  • Services

    Actions that can satisfy people's wants.

  • Shoe-leather costs

    The figurative costs of replacing shoes more often because of increased trips to the bank. This would occur during times of inflation when there is a real cost associated with holding currency in non-interest-bearing checking accounts.

  • Shortage

    When the quantity demanded of a good or service exceeds the quantity supplied at a particular price.

  • Short-run aggregate supply curve

    A graphical depiction of the relationship between the aggregate price level and the quantity of aggregate output supplied.

  • Short-term savings goal

    Goods or services to be bought within a short time, such as a few weeks or months.

  • Signal

    A way to reveal credible information to another party.

  • Sit-in

    A type of protest where people refuse to buy the business's goods and services and block others from making purchases by taking all of the seats in a restaurant or blocking the entrance to a business.

  • Skill premium

    The difference between the average earnings of those with a four-year college degree and those without.

  • Social Security tax

    A payroll tax that is part of FICA (Federal Insurance Contributions Act) and is collected from most employees and employers to fund Social Security, which provides old-age, survivors' and disability income.

  • Socially optimal quantity

    The quantity of goods produced that takes private and social costs into account.

  • Specialization

    Limiting production to fewer goods and services than consumed, perhaps those whose production entails the lower opportunity cost.

  • Spending

    Using some or all of your income to buy things you want now.

  • Stagflation

    The condition of relatively high inflation and relatively high unemployment occurring simultaneously.

  • Standard of living

    A measure of the goods and services available to each person in a country; a measure of economic well-being. Also known as per capita real GDP (gross domestic product).

  • Stigma

    A stain on one's reputation; a mark or token of disgrace.

  • Stimulus packages

    Combinations of tax cuts, subsidies, and increases in government spending.

  • Stock

    A share of ownership in a company. Stocks are often traded publicly.

  • Store of value

    The ability to retain worth.

  • Structural unemployment

    Long-term joblessness caused by a mismatch in the skills held by those looking for work and the skills demanded by those seeking workers.

  • Student loan default

    A student loan with no likelihood of being paid in full by the borrowers.

  • Subsidized loan

    A loan in which the government pays the interest on the loan for a specific time.

  • Substitute

    A similar good. With substitutes, a change in the price of one and the demand for the other tend to move in the same direction.

  • Substitute (resource)

    Productive inputs that can be used in place of one another.

  • Supply

    The quantity of a good or service that producers are willing and able to sell at all possible prices during a certain time period.

  • Surplus

    When the quantity supplied of a good or service exceeds the quantity demanded at a particular price.

  • Tax deductions

    A fixed amount or percentage permitted by taxation authorities that a taxpayer could subtract from his or her gross income to reduce taxable income.

  • Tax refund

    Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.

  • Taxes

    Fees charged on business and individual income, activities, property or products by governments. People are required to pay taxes.

  • Technological change

    An advance in overall knowledge in a specific area. Also known as technological advance.

  • The Truth in Lending Act

    A federal law that requires the disclosure of information about the cost of credit. Both the finance charges and annual percentage rate (APR) must be displayed prominently on forms and statements.

  • Trade

    The exchange of goods or services for other goods or services or for money.

  • Trade-off

    Giving up some of one thing in order to gain some of something else.

  • Tragedy of the commons

    The overuse of a resource, such as water, land, or air, due to poorly defined property rights.

  • Transfer payments

    Payments by governments to people who do not supply goods, services or labor in exchange for the payments.

  • Transfer payments (elementary)

    Money collected from some people and distributed to other people.

  • Transfer programs

    Government programs designed to improve economic equity.

  • Travelers Checks

    Checks issued by a financial institution which function as cash but are protected against loss or theft.

  • U.S. Treasury securities

    Bonds, notes and other debt instruments sold by the United States Treasury to finance United States government operations.

  • Underemployed

    Wanting a full-time job but having only a part-time job; being overqualified for a job and receiving less pay than would be earned at a job requiring a higher skill level.

  • Underemployment (resource)

    A situation that occurs when scarce resources are not put to their highest-valued use in the production of goods and services.

  • Unemployment

    A condition where people at least 16 years old are without jobs and actively seeking work.

  • Unemployment insurance (compensation)

    A program providing cash benefits for a specified period of time to workers who lose a job through no fault of their own.

  • Unemployment rate

    The percentage of the labor force that is willing and able to work, does not currently have a job, and is actively looking for employment.

  • Unintended consequences

    The unexpected and unplanned results of a decision or action.

  • Unit of account

    A common measurement used to compare the value of goods and services.

  • Unsecured loan

    A loan not backed with collateral.

  • W-2 form, Wage and Tax Statement

    A summary of a person's earnings and tax withholdings for an entire year. Employers must provide a W-2 to employees by the end of January for the previous year's employment to report annual income and withholding on the employees' tax returns.

  • W-4 form, Employee's Withholding Allowance Certificate

    A form completed by the employee and used by the employer to determine the amount of income tax to withhold.

  • Wages

    Income earned for providing human resources (labor) in the market. Wages are usually computed by multiplying an hourly pay rate by the number of hours worked.

  • Wants

    Desires that can be satisfied by consuming goods and services.

  • Wealth effect

    The effect on consumer spending caused by a change in the aggregate price level on the purchasing power of the consumers' assets.

  • Willingness to pay

    The maximum amount that a buyer will pay for a good or service.

  • Withholding allowance

    The amount of money that an employer withholds from an employee's paycheck. This money is deposited for the government on behalf of the individual taxpayer. (It will be credited against the employee's tax liability when he or she files a tax return.) Employers withhold money for federal income taxes, Social Security taxes, and state and local income taxes in some states and localities.

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