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A

Ability-to-Pay Principle
The belief that people should be taxed according to their ability to pay, regardless of
the benefits they receive.
The U.S. individual income tax is based on this principle.
Absolute Advantage
The ability to produce more units of a good or service than some other producer,
using the same quantity of
resources.
Accounting Loss
Total explicit costs are greater than total explicit revenue which results in a loss.
Accounting Profit
Total revenue less total costs except for the opportunity cost of capital.
Adaptive Expectations
Expectations about inflation or other economic events.
Add-On Rate
A method of calculating interest on a loan, based on the assumption that the
borrower holds the original
principal for the entire loan period.
Adjusted Balance Method
A method of calculating finance charges by basing them on the opening balance
owed after subtracting the
payments made during the month.
Advertising
Using advertisements (public notices, displays or presentations often based on
celebrity endorsements,
appeals to authority, bandwagon effects and attractive imagery) to promote the
sale of goods or services.
Aggregate Demand (AD)

A schedule (or graph) that shows the value of output (real GDP) that would be
demanded at different price
levels.
Aggregate Supply (AS)
A schedule (or graph) that shows the value of output (real GDP) that would be
produced at different price
levels. In the long run, the schedule shows a constant level of real GDP at all price
levels, determined by the
economy's productive capacity at full employment. In the short run, the aggregate
supply schedule may show
different levels of real GDP as the price level changes.
Allocative Efficiency
Taking advantage of every opportunity to make some individuals better off in their
own estimation while not
worsening the condition of anyone else.
Allowance
A sum of money paid regularly to a person, often by a parent to a child; sometimes
paid in compensation for
services rendered.
Alternative
One of many choices or courses of action that might be taken in a given situation.
Amount Past Due
In a credit arrangement, the amount of money owed and not repaid on time.
Annual Fee
The yearly charge for having a credit card or credit account.
Annual Percentage Rate (APR)
The percentage of the principal of a loan to be paid as interest in one year. Differs
from an add-on rate in that

an APR is calculated on the declining balance of the loan. The Truth in Lending Act
requires lenders to
disclose APRs to prospective borrowers.
Annual Percentage Yield
Income earned on an investment in a year, divided by the amount of the original
investment.
Annual Rate of Return
Income earned on an investment in a year, divided by the amount of the original
investment.
Appreciation of a currency.
A rise in the international value of a currency relative to other international
currencies.
Asian Financial Crisis
The situation that began in 1997-1998 when investors withdrew large amounts of
money from several Asian
countries due to fears that assets were overpriced. This led to currency
devaluations and set off a panic
resulting in runs on banks, plummeting stock prices, business failures and loss of
jobs. Some of the countries
involved were Thailand, South Korea, Indonesia and Malaysia.
Asset
Something of monetary value owned by an individual or an organization.
Assumptions
Beliefs or statements presupposed to be true.
Automated Teller Machine (ATM)
A machine that provides cash and performs banking services (for deposits and
transfers of funds between
accounts, for example) automatically when accessed by customers using plastic
cards coded with personal
identification numbers (PINs).

Average Cost
Total cost (TC) divided by the amount produced.
Average Daily Balance Method
A method of calculating finance charges based on the average amount owed for
each day of the billing cycle.
Average Fixed Cost (AFC)
Total fixed costs divided by the amount produced.
Average Revenue (AR)
Total revenue divided by the amount produced.
Average tax rate (or ratio)
The percentage of overall income that is paid in taxes.
Average Variable Cost (AVC)
Total variable costs divided by the quantity produced.
B
Bait and Switch
The action (generally illegal) of advertising goods that are an apparent bargain (the
bait) with the intention of
inducing customers to buy more expensive items (the switch), on the pretext that
the advertised item is no
longer available.
Balance of Payments
The record of all transactions (in goods, services, physical and financial assets)
between individuals, firms and
governments of one country with those in all other countries in a given year,
expressed in monetary terms.
Balance of Payments Deficit
An imbalance in a nation's balance of payments where more currency is flowing out
of the country than is

flowing in. This unequal flow of currency is considered unfavorable and can lead to a
loss of foreign currency
reserves.
Balance of Payments Surplus
An imbalance in a nation's balance of payments in which more currency is flowing
into the country than is
flowing out. This unequal flow of currency is considered favorable and can lead to
an increase in foreign
currency reserves.
Balance of Trade
The part of a nation's balance of payments accounts that deals only with its imports
and exports of goods and
services. The balance of trade is divided into the balance on goods (merchandise)
and the balance on services.
If the value of a country's exports of goods and services is greater than its imports,
it has a balance of trade
surplus. If the value of a country's imports of goods and services is greater than its
exports, it has a balance of
trade deficit.
Balance Sheet
An itemized statement listing the total assets and total liabilities of a given business
to portray its net worth at
a given moment in time.
Balanced Budget
A financial plan in which income is equal to expenses.
Bank
A financial institution that provides various products and services to its customers,
including checking and
savings accounts, loans and currency exchange.
Bank Account

An arrangement by which a bank holds funds on behalf of a depositor. Also, the


balance of funds held under
such an arrangement, credited to and subject to withdrawal by the depositor.
Bank Reserves
The percentage of a bank's deposits that it keeps on hand, i.e., does not lend out.
Bank Service Charges
Fees paid by bank customers for financial services, for example, check-cashing fees,
fees for overdrafts from
accounts, fees for using the ATMs of other banks and fees for using bank-issued
credit cards.
Bank Statement
A monthly summary providing the status of a depositor's financial accounts
(checking and/or savings).
Banking
The industry involved with conducting financial transactions. Also, conducting
business with a bank, e.g.,
maintaining a checking or savings account or obtaining a loan.
Barriers to Entry
Factors that restrict entry into an industry and give cost advantages to existing
firms. Examples would include
the large size of existing firms, control over an essential resource or information,
and legal rights such as
patents and licenses.
Barriers to Trade
Restrictions on trade such as tariffs, quotas and regulations.
Barter
Trading a good or service directly for another good or service, without using money
or credit.
Benefit

Monetary or non-monetary gain received because of an action taken or a decision


made.
Benefits-Received Principle
The belief that people should be taxed according to the benefits they receive from
the good or service the tax
supports. The gasoline tax is an example.
Blue Chip Stocks
Stocks in large, nationally known companies that have been profitable for a long
time and are well-known and
trusted.
Board of Governors
The Federal Reserve's governing and monetary policy-making body; consists of
seven governors appointed by
the President to staggered 14-year terms.
Bond
A certificate of indebtedness issued by a government or a publicly held corporation,
promising to repay
borrowed money to the lender at a fixed rate of interest and at a specified time.
Borrow
To receive and use something belonging to somebody else, with the intention of
returning or repaying
it--often with interest in the case of borrowed money.
Borrower
An individual who has received and used something belonging to somebody else,
with the intention of
returning or repaying it--often with interest in the case of borrowed money.
Brand
A trade name used to identify a product produced by a particular company,
distinguishing it from similar

products produced by competitors.


Budget
A spending-and-savings plan, based on estimated income and expenses for an
individual or an organization,
covering a specific time period.
Budget Deficit
Refers to national budgets; occurs when government spending is greater than
government income in a given
year. A yearly deficit adds to the public debt.
Budget Surplus
Refers to national budgets; occurs when government income is greater than
government spending in a given
year.
Business
Any activity or organization that produces or exchanges goods or services for a
profit.
Business Cycle
Fluctuations in overall output and employment, normally lasting for several years.
Business Cycles
Fluctuations in the overall rate of national economic activity with alternating periods
of expansion and
contraction; these vary in duration and degrees of severity; usually measured by
real gross domestic product
(GDP).
Business Plan
A description of an enterprise including its name, its goals and objectives, the
product(s) sold and distributed,
the work skills needed to produce those products, and the marketing strategies
used to promote them.

Businesses and Households


Two sectors of the circular flow. Businesses hire resources from households; the
payments for these resources
represent household income. Households spend their income for goods and services
produced by the
businesses; household spending represents revenue for businesses.
C
Capacity
In the context of credit transactions, capacity is one of the Three Cs of Credit. It is
an indicator of how
creditworthy a prospective borrower is likely to be, as determined by the borrower's
current and future
earnings relative to current debt. High earnings and low debt, for example, indicate
a strong capacity to make
payments on the loan in question.
Capital
Resources and goods made and used to produce other goods and services.
Examples include buildings,
machinery, tools and equipment. In the context of credit transactions, capital is one
of the Three Cs of Credit.
It is an indicator of how creditworthy a prospective borrower is likely to be as
determined by the borrower's
current financial assets and net worth.
Capital Account
Part of a nation's balance of payments accounts; records capital outflows, i.e.,
expenditures made by the
nation's residents to purchase physical capital and financial assets from the
residents of foreign nations; also
records capital inflows, i.e., expenditures by residents of foreign nations to purchase
physical capital and
financial assets from residents of the nation in question.

Capital Account Balance


Foreign government and private investment in the United States netted against
similar U.S. investment in
foreign countries.
Capital Gain
A profit realized from the sale of property, stocks or other investments.
Capital Loss
A loss suffered upon the sale of property, stocks or other investments for less
money than the purchase price
of the asset in question.
Capital Resources
Resources made and used to produce and distribute goods and services; examples
include tools, machinery
and buildings.
Cash
Money in the form of paper currency or coins (as distinct from checks, money orders
or credit).
Cash Advance
In a credit arrangement, the amount charged to a borrower's account for cash
received; an instant loan.
Cash Available
In a credit arrangement, the difference between the cash-advance limit and
withdrawals made (advances
issued); the remaining balance.
Cash-Advance Limit
In a credit arrangement, the maximum amount that can be issued for a cash
advance.
Causes of Inflation

Too much money chasing too few goods is common cause for inflation. Additionally,
a rise in production
costs can also lead to a rise in inflation. International lending and federal taxes can
also be causes of inflation,
while war is also a leading cause of inflation as well.
Central Banking System
A nation's central bank that is established to regulate the money supply and
oversee the nation's banks. In the
United States the Federal Reserve is the central bank.
Certificate of Deposit (CD)
A certificate issued by a bank to a person depositing money in an account for a
specified period of time (often
six months, one year or two years). A penalty is charged for early withdrawal from
CD accounts.
Character
In the context of credit transactions, character is one of the Three Cs of Credit. It is
an indicator of how
creditworthy a prospective borrower is likely to be, as determined by the borrower's
handling of past debts
and his or her stability in jobs and residences.
Characteristics of Money
Characteristics of money include it being durable (both physically and socially),
divisible (money can be
divided into increments appropriate for the cost of an item), transportable (literally
meaning that money must
be easy to move), and the ability to regulate the amount of money in a market by
making it uncounterfeitable.
Check
A written order to a financial institution directing the financial institution to pay a
stated amount of money, as
instructed, from the customer's account.

Check Register
A form (usually located in the back of a checkbook) on which users of checking
accounts may record checks
they have written and deposits they have made. Information thus recorded helps
people keep track of balances
in their accounts.
Checking Account
A financial account into which people deposit money and from which they withdraw
money by writing
checks.
Choice
Decision made or course of action taken when faced with a set of alternatives.
Circular Flow
The movement of output and income from one sector of the economy to another;
often illustrated as a circular
flow diagram.
Coincident Indicators
Economic variables, such as payroll employment, industrial production, personal
income, and manufacturing
and trade sales, that tend to change at the same time that real output changes.
Coins
Government-issued pieces of metal that have value and are used as money.
Collateral
Something of value (often a house or a car) pledged by a borrower as security for a
loan. If the borrower fails
to make payments on the loan, the collateral may be sold; proceeds from the sale
may then be used to pay
down the unpaid debt.
Collision Insurance Coverage

Insurance that pays for repairs to an automobile, or replacement of the automobile


(minus the deductible in
each case), if the automobile is hit by another car.
Collusion
A secret agreement between firms to fix prices or engage in other activities to
restrict competition in an
industry; illegal in the United States.
Command Economy
An economy in which most economic issues of production and distribution are
resolved through central
planning and control.
Commodities Market
The market for the purchase and sale of commodity (a basic product, usually, but
not always, agricultural or
mineral) futures, contracts for the sale and delivery of commodities at some future
time.
Communism
In theory, an economic system based on a classless society, common ownership of
all resources, the complete
disappearance of government and income allocated according to need. In practice,
communism usually refers
to the command economic system in existence in the former Soviet Union before its
downfall in 1990-1991,
and in other countries such as China and Cuba.
Communities and Cities
A community can be considered a social group which retains an environment, while
sharing interest in
economic progress. A city can be considered a financial and commercial center.
Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than some other
producer. This is the
economic basis for specialization and trade.
Comparison Shopping
Examining different brands or models of a product (to learn about variations in
quality, size, etc.), or the
prices charged by different sellers (to learn about possible cost-savings), before
deciding what to buy.
Competition
Attempts by two or more individuals or organizations to acquire the same goods,
services, or productive and
financial resources. Consumers compete with other consumers for goods and
services. Producers compete
with other producers for sales to consumers.
Complementary Goods and Services
Goods and/or services that are typically used together, such as hamburger and
hamburger buns, or tennis
rackets and tennis lessons.
Complements
Goods and/or services that are often consumed together; e.g., left and right socks,
or tennis rackets and tennis
lessons.
Compound Interest
Interest that is earned not only on the principal but also on the interest already
earned.
Compounding
Paying interest on the principal and on interest already earned. For example, if
someone deposits $2,000 in an
account that pays interest at 8 percent, he or she will earn $160 in interest after
one year, for a balance of

$2,160. If the depositor leaves this sum in the account for another year, however,
he or she will earn $172.80
in interest because the 8 percent rate will apply to the new balance of $2,160, not
the original $2,000 deposit.
The longer the money is left in the account, the more dramatic the compounding
effect.
Comprehensive Insurance Coverage
Insurance that pays for repairs to an automobile, or replacement of an automobile
(minus the deductible in
each case), if the automobile is stolen or damaged by something other than a
collision (for example, by a hail
storm).
Concentration Ratio
The percentage of the total industry by the largest firms (generally four or eight) in
an industry. The
concentration ratio provides a measure of domination in an industry by a few firms
and serves as a measure of
whether an industry is an oligopoly.
Consequence
A result or effect of an action or decision; may be positive or negative.
Consume
To buy and use a good or service.
Consumer Economics
The study of economics that addresses decisions of consumers in the marketplace
and personal money
management.
Consumer Price Index (CPI)
A price index that measures the cost of a fixed basket of consumer goods and
services and compares the cost

of this basket in one time period with its cost in some base period. Changes in the
CPI are used to measure
inflation.
Consumer Surplus
The difference between the price a consumer would be willing to pay for a good or
service and the price that
consumer actually has to pay.
Consumers
People who use goods and services to satisfy their personal needs and not for resale
or in the production of
other goods and services.
Consumption
Spending by households on goods and services. The process of buying and using
goods and services.
Contractionary Fiscal Policy
A decrease in government spending and/or an increase in taxes designed to
decrease aggregate demand in the
economy and control inflation.
Corporation
A legal entity owned by shareholders whose liability for the firm's losses is limited to
the value of the stock
they own.
Cost-Push Inflation
Inflation caused by rising costs of production.
Cost/Benefit Analysis
A process of examining the advantages (benefits) and disadvantages (costs) of each
available alternative in
arriving at a decision.
Costs

An amount that must be paid or spent to buy or obtain something. The effort, loss
or sacrifice necessary to
achieve or obtain something.
Costs of Production
Amounts paid for resources (land, labor, capital and entrepreneurship) used to
produce goods and services.
Council of Economic Advisers
A three-member group that gathers information on the economy, reports on
economic developments and
recommends strategies to the President.
Credit
The opportunity to borrow money or to receive goods or services in return for a
promise to pay later.
Credit Agreement
A written promise to repay something that is borrowed.
Credit Application
A request for a loan, submitted to a lender (for example, a bank or a credit union)
by a prospective borrower.
The credit application provides background information which the lender uses to
assess the prospective
borrower's creditworthiness--his or her ability to repay the loan.
Credit Card
A small, specially coded plastic card issued by a bank, business, etc., authorizing
the cardholder to purchase
goods or services on credit.
Credit Costs
Charges associated with the acceptance of a loan, including the finance charge and
transaction fees (for
example, loan fees, annual or monthly fees on a credit account).

Credit History
A record of past borrowing and repayments.
Credit Limit
The maximum amount of money that will be extended to a person by a financial
institution or credit-card
issuer.
Credit Rating
An evaluation of a borrower's ability to repay a loan based on his or her character,
capacity and capital.
Credit Record
A report about a person's credit history, including his or her ability and willingness
to repay debts, based on
how reliably he or she has repaid debts in the past. Also known as a credit report.
Credit Report
A report about a person's credit history, including his or her ability and willingness
to repay debts, based on
how reliably he or she has repaid debts in the past. Also known as a credit record.
Credit Union
A nonprofit financial institution owned by its members; offers various financial
services including accounts
and loans; regulated by the National Credit Union Association (NCUA).
Credit-Card Statement
A monthly summary from a credit-card company conveying information about a
cardholder's purchases,
payments, balance due and fees.
Creditor
A person or company to whom money is owed.
Creditworthiness

The extent to which a person is deemed suitable to receive credit, especially as


shown by reliability in
repaying loans in the past.
Cross-Price Elasticity of Demand
The percentage change in the quantity demanded for one good divided by the
percentage change in the price
of a related good, everything else held constant. It measures the degree to which
goods are substitutes or
complements. When the cross-price elasticity of demand is positive, the goods are
substitutes; when the
cross-price elasticity of demand is negative, the goods are complements.
Crowding-Out
Increased interest rates and decreased private investment caused by government
borrowing.
Currency
The money in circulation in any country.
Currency Board
A government organization existing in a few countries that establishes a fixed
exchange rate for the nation's
currency.
Currency Devaluation
When a government adjusts the value of the nation's currency so that it buys less of
foreign currencies than
before.
Current Account
Part of a nation's balance of payments accounts; records exports and imports of
goods and services, net
investment income and transfer payments with other countries.
Current Account Balance

The inflow of the goods, services, investment income and transfer accounts into the
United States from
foreign countries netted against the outflow of goods, services, investment income
and transfer accounts from
the United States to foreign countries.
Cyclical Unemployment
Unemployment caused by fluctuations in the overall rate of economic activity or
phase of the business cycle.
D
Deadweight Loss
The loss of consumer and producer surpluses resulting from a tax.
Debit Card
A small, specially coded plastic card issued by a bank; allows the cardholder to
transfer funds electronically
and immediately from his or her checking account, as if the cardholder were writing
a check to pay for a
purchase.
Debt
Money owed to someone else. Also the state or condition of owing money. Can be
individual, corporate or
government debt.
Debt for Individual
Money a person owes to someone else, usually a financial institution.
Deceptive Practices
Misleading methods used by businesses to sell goods or services. Examples include
misleading prices,
bait-and-switch tactics and false advertising.
Decision
A conclusion reached after considering alternatives and their results.

Decision Making
Reaching a conclusion after considering alternatives and their results.
Decision-Making Grid
A graph-like form into which people may enter notations about the costs and
benefits of various alternatives;
used for assistance in making decisions.
Deductible
Regarding insurance policies: A set amount an insured person must pay per loss
before the insurance
company will pay a claim.
Definition of Money
A medium of exchange which can be conveniently circulated and is seen as an
effective form of currency.
Deflation
A sustained decrease in the average price level of all the goods and services
produced in the economy.
Demand
The quantity of a good or service that buyers are willing and able to buy at all
possible prices during a period
of time.
Demand Deposit
An account from which funds may be withdrawn by writing a check at any time and
without having to obtain
the approval of the financial institution in advance.
Demand-Pull Inflation
Inflation caused by increasing demand for output or "too much money chasing too
few goods."
Deposit
Money put into a financial account. Also, to place money in a financial account.

Depreciation
A reduction in the value of capital goods over time due to their use in production.
Depreciation of a currency.
A decrease in the international value of a currency relative to other international
currencies.
Depreciation of Currency
A decline in the price of one currency relative to another.
Depression
A severe, prolonged economic contraction.
Derived Demand
Demand resulting from what a good or service can produce, not demand for the
good or service itself.
Determinants of Demand
Factors other than the price of a good or service that change (shift) the demand
schedule, causing consumers
to buy more or less at every price. Factors include income, number of consumers,
preferences and prices of
related goods.
Determinants of Supply
Factors other than the price of a good or service that change (shift) the supply
schedule, causing producers to
supply more or less at every price. Factors include number of producers, production
costs, and technology and
productivity.
Diminishing Marginal Utility
A widely observed relationship in which the additional satisfaction (marginal utility)
associated with
consuming additional units of the same product in a given amount of time
eventually declines.

Direct Deposit
The electronic transfer of a payment (for a month's salary, for example) directly
from the payer's account to
the recipient's account.
Direct Relationship
The relationship that exists when the values of related variables move in the same
direction. Also known as a
positive relationship.
Discount Rate
The interest rate the Federal Reserve charges commercial banks for loans.
Discouraged Workers
Unemployed people who have given up looking for work and are therefore not
counted as part of the labor
force.
Disincentive
A factor, often a monetary policy or disadvantage, that discourages people from
doing something.
Disposable Income
The amount of money a person has left to save or spend after income taxes, Social
Security taxes and other
required deductions have been taken out of his or her pay.
Distribution
The allocation or dividing up of the goods and services a society produces.
Distribution of Income
The way in which the nation's income is divided among families, individuals or other
designated groups.
Diversify
To invest in a variety of stocks, bonds, money market accounts, etc., in order to
spread risk.

Dividend
A share of a company's net profits paid to stockholders.
Division of Labor
An arrangement in which workers perform only one step or a few steps in a larger
production process (as
when working on an assembly line).
Durable Goods
Goods intended to last for a period of more than three years.
E
Earned Income
Money received for work performed; may include salary, wages, tips, professional
fees, commissions, etc.
Easy-Money Policy
Monetary policy designed to stimulate the economy by increasing the level of bank
reserves through lowering
the discount rate, lowering reserve requirements or buying securities through open
market operations.
Economic Development
The process of improving the quality of human lives through raising living
standards. Economic development
is broader than economic growth, which is concerned with year-to-year increases in
production. Economic
development deals with the economic, social and political institutions that govern
the way the economy and
society function.
Economic Efficiency
A situation in which no one in a society can be made better off without making
someone else worse off.
Economic Equity

The application of our concepts of what is "fair" or "unfair" and what is "right" or
"wrong" to an economic
policy. Ultimately deals with the distribution of income and wealth.
Economic Freedom
The freedoms of the marketplace--the freedom of consumers to decide how they
wish to allocate their
spending among various goods and services; the freedom of workers to choose to
change jobs, join unions and
go on strike; the freedom of individuals to establish businesses and to decide what
to produce and when to
change their pattern of production; and the freedom of savers to decide when and
where to invest their
savings.
Economic Functions of Government
In a market economy, government agencies establish and maintain a legal system
to regulate both commercial
and social behavior, promote competition, respond to market failures by providing
public goods and adjusting
for externalities, redistribute income and establish macroeconomic stabilization
policies. To perform these
functions, governments must shift resources from private uses by taxing and/or
borrowing.
Economic Growth
An increase in real output as measured by real GDP or per capita real GDP.
Economic Incentives
Factors that motivate and influence the behavior of individuals and organizations,
including firms and
government agencies. Prices, profits and losses are important economic incentives
in a market economy.
Economic Institutions

Organizations such as households and families; formal organizations such as


corporations, government
agencies, banks, labor unions and cooperatives; a system of law; customary ways of
doing things such as the
use of money, collective bargaining and the observance of certain holidays; and
controlling values and beliefs.
Economic Loss
Total revenue is less than total costs when total costs include all opportunity costs.
Economic Profit
A firm's total revenue minus all explicit and implicit costs of production, including
opportunity costs.
Economic Rent
Payment for the use of something that is in fixed or perfectly inelastic supply;
earnings in excess of the
earnings required to keep a resource in its current use; the portion of a resource's
earnings that is not necessary
to keep the resource in its present use.
Economic Security
Protection against economic risks, such as unemployment, accidents on the job,
business failures or natural
disasters, over which people have little or no control.
Economic Systems
The institutional framework of formal and informal rules that a society uses to
determine what to produce,
how to produce and how to distribute goods and services.
Economic Wants
Desires that can be satisfied by consuming a good or service. Economists do not
differentiate between wants
and needs.
Economic Way of Thinking

A reasoning process that involves considering costs as well as benefits in making


decisions.
Economics
The study of how people, firms and societies choose to allocate scarce resources
with alternative uses.
Economizing Behavior
Considering the costs and benefits of various alternatives and choosing the one with
the greatest net benefits.
Elasticity of Demand
Price elasticity of demand is the percentage change in quantity demanded as a
result of the percentage change
in demand price. Generally, a relative response of a change in quantity demanded
to a relative change in price.
Electronic Funds Transfer Act
A federal law providing consumer protection for people who use ATMs and debit
cards. The law limits users'
liability for unauthorized charges made on cards that have been lost or stolen.
Employment Rate
The percentage of the total population aged 16 or over that is employed.
Endorsement
A signature on the back of a check instructing the bank as to how the check may be
cashed. There are three
types of endorsement. Blank endorsement: The signature makes the check as good
as cash to anybody who
holds it. Restrictive endorsement: The signature tags the check for a specific
purpose, such as "for deposit
only" to a checking or savings account. Special endorsement: The signature allows
the holder to transfer the
check to another person.
Entrepreneur

One who draws upon his or her skills and initiative to launch a new business venture
with the aim of making a
profit. Often a risk-taker, inclined to see opportunity when others do not.
Entrepreneurship
A characteristic of people who assume the risk of organizing productive resources to
produce goods and
services; a resource.
Equal Credit Opportunity Act
A federal law that prevents lenders from denying credit on the basis of an
applicant's sex, marital status, race,
national origin, religion, or age, or because an applicant receives public assistance.
Equilibrium Price
The price at which the quantity demanded by buyers equals the quantity supplied
by sellers; also called the
market-clearing price.
Equilibrium Quantity
The quantity demanded and quantity supplied at the equilibrium or market-clearing
price.
Equity
Stock, both common and preferred. Also, the value of mortgaged property after
accounting for charges against
it or money owed.
European Union (EU)
An association of European nations created by the Maastricht Treaty signed in 1992.
The EU has eliminated
quotas and tariffs among its members and created other common economic
policies.
Excess Reserves
A bank's cash reserves beyond the required reserves, which can be loaned.

Exchange
Trading a good or service for another good or service, or for money.
Exchange Rate
The price of one nation's currency in terms of another nation's currency.
Expansionary Fiscal Policy
An increase in government spending and/or a decrease in taxes designed to
increase aggregate demand in the
economy, thus increasing real output and decreasing unemployment.
Expenses
Payments for goods and services.
Experimental Economics
The study of people's behavior in the marketplace by scientific testing in the
laboratory.
Explicit Cost
The monetary payment a firm must make to obtain a resource.
Exports
Goods and services produced in one nation and sold in other nations.
Externalities
Economic side-effects or third-party effects, in which some of the benefits or costs
associated with the
production or consumption of a product affect someone other than the direct
producer or consumer of the
product. Can be positive or negative.
F
Factor Endowments
The theory that differences in factor endowments among countries result in
different opportunity costs;
countries have comparative advantages in the production of commodities that are
intensive in the use of the

factors of production with which their endowments are relatively abundant.


Factor Prices
The prices of land, capital, labor and entrepreneurship.
Factors of Production
Productive resources; what is required to produce the goods and services that
people want; natural resources,
human resources, capital goods and entrepreneurship.
Fair Credit Billing Act
A federal law that requires creditors to mail out bills at least 14 days before
payment is due and also
establishes procedures for resolving billing errors on credit accounts.
Fair Credit Reporting Act
A federal law governing the activities of credit bureaus and creditors. It requires
creditors to furnish accurate
and complete information to borrowers; it also establishes a process consumers
may use to correct
inaccuracies in credit reports.
Fair Debt Collection Practices Act
A federal law that bars collection agencies from using threats, harassment or abuse
in their efforts to collect
debts.
Fair-Return Price
A price that allows a regulated monopoly, such as gas, electric and telephone
companies, to earn the approved
profit.
Federal Budget
The taxing and spending plan of the national government.
Federal Deposit Insurance Corporation (FDIC)

A federal agency that guarantees depositors' savings up to $100,000 per account in


most commercial banks,
savings banks and savings associations.
Federal Income Tax
A tax paid by individuals and businesses to the federal government to fund such
services as national defense,
human services, and the monitoring and regulation of trade.
Federal Insurance Contributions Act (FICA)
A federal system of old-age, survivors, disability and health-care insurance
(Medicare) which requires
employers to withhold (or transfer) wages from employees' paychecks and deposit
that money in designated
accounts.
Federal Reserve
The central bank of the United States. Its main function is controlling the money
supply through monetary
policy. The Federal Reserve System divides the country into 12 districts, each with
its own Federal Reserve
bank. Each district bank is directed by its nine-person board of directors. The Board
of Governors, which is
made up of seven members appointed by the President and confirmed by the
Senate to 14-year terms, directs
the nation's monetary policy and the overall activities of the Federal Reserve. The
Federal Open Market
Committee is the official policy-making body; it is made up of the members of the
Board of Governors and
five of the district bank presidents.
Federal Reserve Structure
The structure of the Federal Reserve revolves around a Board of Governors. There
are seven (7) members on

the Board of Governors appointed to one fourteen (14) year term by the President.
Two appointees are
designated by the President as Chairman and Vice-Chairman and are subsequently
confirmed by the Senate to
four (4) year terms. Only one person from the twelve (12) Federal Reserve districts
is only allowed
appointment to the Board.
Finance Charge
The total cost of credit, including interest and transaction fees.
Financial Intermediaries
Banks, credit unions, pension funds, insurance companies, mutual fund companies
and other financial
institutions that bring together savers and borrowers and buyers and sellers of
stocks and bonds.
Financial Planning
Setting short-, medium- and long-range goals; then collecting and analyzing income
and expenditure
information to determine how to meet one's goals.
Financial Risk
The chance that an individual, business or government will not be able to return
money invested.
Firms
Economic units that demand productive resources from households and supply
goods and services to
households and government agencies.
Fiscal Policy
Changes in the expenditures or tax revenues of the federal government, undertaken
to promote full
employment, price stability and reasonable rates of economic growth.
Fixed Costs (FC)

Costs of production that do not change as a firm's output level changes; costs that
must be paid whether the
firm produces or not.
Fixed Exchange Rate
An exchange rate that is set and therefore prevented from rising or falling with
changes in supply and demand
for a nation's currency.
Fixed Expenses
Expenditures that are the same from week to week or month to month, such as
mortgage or rent payments and
car payments.
Fixed Income
Income that stays the same from week to week or month to month. Usually refers to
income from pensions or
bonds.
Flexible (Floating) Exchange Rate
An exchange rate that is determined by the international demand for and supply of
a nation's money; a rate
free to rise or fall (to float).
Foreign Direct Investment (FDI)
Investment that involves ownership of a firm or business in another country. FDI
involves things such as
constructing factories on foreign soil, rather than investing in stock markets
(portfolio investment). The
investing company frequently provides financial, managerial and technical
assistance and other resources to
the foreign country.
Foreign Exchange Market
The market where the demand for and supply of foreign currencies determines
exchange rates.

Foreign Investment
The purchase of financial and/or physical assets in one county by businesses or
people in another county. This
term can refer to either foreign direct investment or investment in foreign financial
assets, such as stocks.
Fractional Reserve Banking System
A system in which banks are required to hold only a specified fraction of their
deposits available for
withdrawal by depositors. The rest may be lent out, thus "creating money."
Fraud
Wrongful or criminal deception intended to manipulate a person for the purpose of
gain, usually financial.
Fraud Risk
The chance that an investment has been misrepresented.
Free Rider
One who enjoys the benefits of a good or service without paying for it.
Free Trade
The voluntary exchange of goods and services in the absence of trade barriers and
restrictions.
Frictional Unemployment
Unemployment caused by the short-term movement of people between jobs and by
first-time job seekers
entering the labor force; always present in a dynamic economy.
Full Employment
The natural rate of employment; generally considered to be about 93-95 percent of
the labor force, allowing
for frictional unemployment of 5-7 percent.
Functional Distribution
Essentially, distribution between different groups.

Functional Distribution of Income


The division of an economy's total income into wages and salaries, rent, interest,
and profit; shows the
breakdown of income received by individuals and businesses based on the type of
resources provided to the
productive process.
Functions of Money
Money functions as a medium of exchange, a store of value, and also a unit of
account.
Future Consequences
Costs and/or benefits of a choice that will be paid or gained at a later time.
G
Gains from Trade
The increased output resulting from trade; with trade, each individual, region or
nation is able to concentrate
on producing goods and services that it produces efficiently, while trading to obtain
goods and services that it
does not produce.
Gini Coefficient
An index measuring the degree of income or wealth inequality.
Globalization
Although there is no one precise definition, the term usually refers to the increased
flow of trade, people,
investment, technology, culture and ideas among countries.
Goal
Something a person or organization plans to achieve in the future; an aim or desired
result.
Goods
Tangible objects that satisfy economic wants.

Government Expenditures
Goods and services provided by government and paid for by taxing and borrowing.
Federal government
expenditures include national defense and a system of justice. State and local
government expenditures
include police, roads and public education.
Government Failure
Policy and budget choices by government officials that result in inefficiency.
Government Failures/Public-Choice Analysis
In a civics textbook, a democratically elected government makes decisions
according to the will of (a majority
of) the people. In the real world, government failure may occur so that government
decisions do not represent
the majority. Public-choice analysis is the branch of economics that studies how
political decisions are
actually made. When analyzing government policies, it is useful to examine the
incentives of the participants
in the government decision making.
Government Revenues
Funds raised through taxing and borrowing to pay for government expenditures.
Government Spending
Spending by all levels of government on goods and services; includes categories
like military, schools and
roads.
Grace Period
A period of time allowed for payment of money owed; after the grace period has
elapsed, interest may be
charged.
Gross Domestic Product (GDP)

The market value of all final goods and services produced in a country in a calendar
year.
Gross Income
A total amount of money earned (from salaries, wages, etc.) before taxes and other
deductions are withheld.
Also known as gross pay.
Gross Pay
A total amount of money earned (from salaries, wages, etc.) before taxes and other
deductions are withheld.
Also known as gross income.
Growth Fund
A mutual fund whose major objective is long-term capital growth. Growth funds offer
the potential for
substantial gains over time, but shares fluctuate in value during ups and downs in
financial markets.
H
Heterogeneous Products
Products (goods or services) that are differentiated by real or imagined differences
in quality or other features,
such as color, taste, styling, warranties or complimentary services provided to those
who buy the products.
Homogeneous Products
Products (goods or services) that are identical, with no differentiating features.
Horizontal Merger
A combination formed when two businesses producing the same goods or services
merge.
Households
Individuals and family units that buy goods and services (as consumers) and sell or
rent productive resources
(as resource owners).

Housing
Accommodation in houses, apartments, etc.
Human Capital
The health, education, experience, training, skills and values of people. Also known
as human resources.
Human Capital Investment
Investment of time, effort and resources in education and training--to increase one's
own knowledge, skills,
health, etc., or to develop those assets in others.
Human Resources
The health, education, experience, training, skills and values of people. Also known
as human capital.
Hyperinflation
A very rapid rise in the overall price level.
I
Identity Theft
Unauthorized, illegal use of a person's legal and financial identification (for example,
his or her Social
Security number or PIN).
Imperfect Competition
Any market structure in which firms are not price takers, but instead must seek the
price and output levels that
maximize their profits.
Implicit Cost
The monetary income a firm sacrifices when it employs a resource it owns to
produce a product rather than
supplying the resource in the market; equal to what the resource could have earned
in the best-paying
alternative employment.

Implicit Price Deflator


A price index that compares the prices of all the goods and services produced in the
current-year gross
domestic product (GDP) to the price levels that prevailed for those same goods and
services in an earlier year
or years. The implicit price deflator is used to adjust values of nominal or currentprice GDP to obtain values
for real GDP.
Imports
Goods and services bought from sellers in another nation.
Impulse Buying
Buying goods or services without comparison shopping or forethought about costs
and benefits.
Incentive
Any reward or benefit, such as money, advantage or good feeling, that motivates
people to do something.
Income
Payments earned by households for selling or renting their productive resources.
May include salaries, wages,
interest and dividends.
Income Effect
A portion of the effect on quantity demanded caused by a change in the price of a
good or service. A fall in
price, for example, increases a consumer's real income and leads to a change in the
quantity demanded of that
good or service.
Income Elasticity of Demand
The percentage change in the demand for a good or service divided by the
percentage change in income.
Income Inequality

The unequal distribution of an economy's total income among families, individuals


or other designated
groups.
Income Statement
The report of the revenue generated and expenses incurred by a firm in a
designated time period, such as a
month, a quarter or a year.
Income Tax
Payments made by individuals and corporations to the federal government (and to
some state and local
governments) based on income received (both earned and unearned).
Index Fund
A mutual fund whose objective is to match the composite investment performance
of a large group of stocks
or bonds such as those represented by the Standard & Poor's 500 Composite Stock
Index.
Indirect Relationship
The relationship that exists when the values of related variables move in the
opposite direction. Also known
as a negative relationship.
Individual Retirement Account (IRA)
An account in which an individual may set aside earned income in a tax-deferred
savings plan for his or her
retirement. There are two types of IRAs, traditional and Roth, each with its own
qualifications and rules
governing contributions and withdrawals.
Inferior Good
A commodity whose quantity demanded falls when the consumer's real income
rises.
Inflation

A rise in the general or average price level of all the goods and services produced in
an economy. Can be
caused by pressure from the demand side of the market (demand-pull inflation) or
pressure from the supply
side of the market (cost-push inflation).
Inflation Risk
The chance that the rate of inflation will exceed the rate of return on an investment.
Initial Public Offering (IPO)
A company's first sale of stock to the public. When a company "goes public," it sells
blocks of stock shares to
an investment firm that specializes in initial offerings of stocks and resells them to
the public.
Innovation
A new idea or method.
Institutional Investor
A financial intermediary, such as a pension fund or a mutual fund, that buys stock
and other investments for
clients.
Insurance
A practice or arrangement whereby a company provides a guarantee of
compensation for specified forms of
loss, damage, injury or death. People obtain such guarantees by buying insurance
policies, for which they pay
premiums. The process allows for the spreading out of risk over a pool of insurance
policyholders, with the
expectation that only a few policholders will actually experience losses for which
claims must be made. Types
of insurance include automobile, health, renter's, homeowner's, disability and life.
Intensive Growth
Quick, rapid growth in a certain sector or area.

Interdependence
A situation in which decisions made by one person affect decisions made by other
people, or events in one
part of the world or sector of the economy affect other parts of the world or other
sectors of the economy.
Interest
Money paid regularly, at a particular rate, for the use of borrowed money.
Interest Rate
The price paid for using someone else's money, expressed as a percentage of the
amount borrowed.
Interest Rate Risk
The chance that interest rates may change (upward) while the saver is "locked in"
to a (lower) rate for a time
deposit (a CD, for example) or a bond.
Intermediate Good
A good that is used in the production of final goods and services.
Intermediate-Term Goal
Something a person or organization plans to achieve from one to five years in the
future.
Internal Revenue Service (IRS)
The government agency that collects federal income taxes.
International Monetary Fund (IMF)
An international organization established to supervise exchange-rate arrangements
and to lend money to
member countries having difficulties meeting their financial obligations to other
countries.
Inventors
Someone who creates or devises a new process, application, machine, or article of
application.

Inventory
An itemized list of goods held by a person or business. Also a quantity of goods held
in stock.
Investing
The process of putting money someplace with the intention of making a financial
gain. Investment
possibilities include stocks, bonds, mutual funds, real estate, and other financial
instruments or ventures.
Investment
The purchase of capital goods (including machinery, technology or new buildings)
that are used to produce
goods and services. In personal finance, the amount of money invested in stocks,
bonds, mutual funds and
other investment instruments.
Investment Return
The additional income earned from saving or investing money, often expressed as
an annual percentage of the
amount invested.
Invisible Hand
A figure of speech representing the idea that firms and individuals making decisions
in their own self-interest
will at the same time create economic order and promote society's interests; coined
by Adam Smith.
J
Job
A piece of work usually done on order at an agreed-upon rate. Also a paid position
of regular employment.
K
Keogh Plan

A federally-approved, tax-deferred savings program for self-employed people,


allowing them to set money
aside for their retirement.
Keynesian Economics
A school of thought that emphasizes the role government plays in stabilizing the
economy by managing
aggregate demand.
Keynesian Theory
The macroeconomic theory holding that business cycles are caused by changes in
aggregate demand and that
such cycles can and should be influenced by fiscal and monetary policy undertaken
to promote economic
stability.
L
Labor
The quantity and quality of human effort available to produce goods and services.
Labor Force
The people in a nation who are aged 16 or over and are employed or actively
looking for work.
Labor Market
The labor supply and labor demand curves. The intersection of the labor supply and
labor demand curves
determines the equilibrium wage and the quantity of hours people work at this
equilibrium wage.
Labor Union
An economic institution that represents an organized group of workers (by industry
or by type of worker
regardless of the industry) to negotiate with management by means of collective
bargaining.
Lagging Indicators

Economic variables such as the prime interest rate, labor cost per unit of output,
inventories to sales ratio and
unemployment duration that tend to change after real output changes.
Land
"Gifts of nature" that can be used to produce goods and services; for example,
oceans, air, mineral deposits,
virgin forests and actual fields of land. When investments are made to improve
fields of land or other natural
resources, those resources become, in part, capital resources. Also known as natural
resources.
Late Fee
In a credit arrangement, a fee charged when payment is received after the due
date.
Law of Demand
As the price of a good or service rises (or falls), the quantity of that good or service
that people are willing
and able to buy during a certain period of time falls (or rises).
Law of Diminishing Marginal Returns
Describes a phenomenon observed in all short-run production processes, when at
least one input (usually
capital) is fixed. As more and more units of a variable input (usually labor) are
added to the fixed input, the
additional (marginal) output associated with each increase in units of the variable
input will eventually
decline. In other words, successive increases in a variable factor of production
added to fixed factors of
production will result in smaller increases in output.
Law of Diminishing Marginal Utility
A widely observed relationship in which the additional satisfaction (marginal utility)
associated with

consuming additional units of the same product in a given amount of time


eventually declines.
Law of Supply
As the price of a good or service that producers are willing and able to offer for sale
during a certain period of
time period rises (or falls), the quantity of that good or service supplied rises (or
falls).
Leading Economic Indicators
Economic variables such as unemployment claims, manufacturers' new orders,
stock prices, and new plant
and equipment orders that tend to change before real output changes.
Legal and Social Framework
The system of laws, institutions, traditions and customs, and incentives that forms
the basis of a society and
its economy.
Legal Forms of Business
Forms of business organizations protected by a nation's laws; in the United States,
the three forms of business
organization are the corporation, partnership and sole proprietorship.
Legal Foundations of a Market Economy
The laws and institutions that support a market economy; examples include
protection of private property and
enforcement of contracts.
Lend
To grant someone the use of something, on condition that the object borrowed or its
equivalent will be
returned (often with interest, in the case of money).
Lender
One who lends; may be an individual or a business.

Letter of Application
A letter written by a job-seeker to a prospective employer in which the job-seeker
may introduce himself or
herself, express interest in a particular job, describe his or her qualifications for that
job, request an interview
and generally seek to convince the employer that he or she would make a great
employee.
Levels of Competition
Various perspectives concerning economic participation that people fall under with
regard to competition for
resources.
Liability
Legal responsibility to pay for damages or losses one has caused.
Liability Insurance Coverage
Automobile insurance that pays for costs of bodily injury and property damage
when the insured person
damages someone or something with his or her car.
Liquid Investments
Investments or savings (such as savings accounts and money market mutual funds)
from which money can be
accessed immediately.
Liquidate
To wind up the affairs of a company by identifying liabilities and selling off assets in
order to make payments
to creditors.
Liquidity
The ease with which savings or investments can be turned into cash.
Liquidity Risk

The chance that an investor will find it difficult to turn an investment into cash (by
trying to sell a house, for
example, in a down market for real estate).
Loan Scam
An illegal scheme in which somebody runs an advertisement, targeted to people
who have run up large debts,
offering a personal-debt consolidation loan on terms that seem to be very
attractive. The consumer is
instructed to send in a fee in order to obtain the loan. The loan never arrives.
Loanable Funds Market
Market in which the supply and demand for money, in the form of bank deposits and
loans, determine the
interest rate.
Long Run
A period of time long enough for firms to change the quantities of all the resources
they use; the exact amount
of time varies depending on the industry.
Long-Term Goal
Something a person or organization plans to achieve at least five years in the
future.
Lorenz Curve
A graph showing income or wealth inequality.
M
Macroeconomic Equilibrium
The equilibrium level of output and the price level where aggregate demand equals
aggregate supply.
Macroeconomic Indicators
Macroeconomic indicators include Gross Domestic Product (GDP), Gross National
Product (GNP), New

Durable Goods orders, Retail Sales Indicator, New Home/Construction Sales, and
Stock Prices.
Macroeconomic Policies
Government actions designed to affect economic activity in an attempt to reach one
or more macroeconomic
goals, such as reducing unemployment and inflation. Also called economic policies,
the most common types
are fiscal policy and monetary policy.
Macroeconomics
The study of economics concerned with the economy as a whole, involving
aggregate demand, aggregate
supply, and monetary and fiscal policy.
Maintaining Regulation
Maintaining regulation is the upkeep and revision of price and output prescriptions
for a specific industry
(economic regulation); or the health, safety, performance, environmental, output
and job standards
prescriptions across several industries (social regulation).
Marginal Analysis
A decision-making tool for comparing the additional or marginal benefits of a course
of action to the
additional or marginal costs.
Marginal Benefit
The additional gain from consuming or producing one more unit of a good or
service; can be measured in
dollars or satisfaction.
Marginal Cost
The increase in a producer's total cost when it increases its output by one unit.
Marginal Physical Product (MPP)

The additional quantity that is produced when one additional unit of a resource is
used in combination with
the same quantities of all other resources.
Marginal Propensity to Consume (MPC)
Change in consumption as a proportion of change in disposable income; the ratio of
the change in
consumption to the change in disposable income that produces the change in
consumption.
Marginal Propensity to Save (MPS)
Change in saving as a proportion of change in disposable income; the ratio of the
change in saving to the
change in disposable income that produces the change in saving.
Marginal Resource Product
The amount by which production would decrease if one unit of the resource was
withdrawn from production.
Marginal Revenue (MR)
The addition to a producer's total revenue resulting from the addition of one unit to
total output.
Marginal Revenue Product (MRP)
The change in the total revenue of the firm when it employs one additional unit of a
resource.
Marginal tax rate (or ratio)
The percentage of an increase in income that is paid in taxes.
Marginal Utility
The extra value or satisfaction that a consumer obtains from consuming one
additional unit of output.
Market Economy
An economy that relies on a system of interdependent market prices to allocate
goods, services, and

productive resources and to coordinate the diverse plans of consumers and


producers, all of them pursuing
their own self-interest.
Market Failures
The systematic overproduction or underproduction of some goods and services that
occurs when producers or
consumers do not have to bear the full costs of transactions they undertake. Usually
related to externalities or
the need for public goods.
Market Price Risk
The chance that the value of an investment will go down because of a change in
supply and demand.
Market Structure
The degree of competition in a market, ranging from many buyers and sellers to few
or even single buyers or
sellers.
Markets
Places, institutions or technological arrangements where or by means of which
goods or services are
exchanged. Also, the set of all sale and purchase transactions that affect the price
of some good or service.
Median Income
The middle value or midpoint of incomes of people in a specified area where half of
the incomes are above
the middle value and half of the incomes are below it.
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.

Medium-Term Goal
Something a person or organization plans to achieve from one to five years in the
future.
Microeconomics
The study of economics concerned with individual units of the economy such as
households, firms and
markets; with how prices and outputs are determined in those markets; and with
how the price mechanism
allocates resources and distributes income.
Minimum Payment
In a credit arrangement, the lowest amount that a borrower must pay toward the
credit balance each month in
order to avoid a penalty.
Monetarist Theory
A school of thought that emphasizes the role changes in the money supply play in
determining national
income and price level. Monetarists argue that in the long run only changes in the
money supply change the
price level.
Monetary Incentive
A factor related to money, income or economic wealth that encourages people to do
something.
Monetary Policy
Changes in the supply of money and the availability of credit initiated by a nation's
central bank to promote
price stability, full employment and reasonable rates of economic growth.
Money
Anything that is generally accepted as final payment for goods and services; serves
as a medium of exchange,

a store of value and a standard of value. Characteristics of money are portability,


stability in value, uniformity,
durability and acceptance.
Money Management
A system for income and spending that allows for the achievement of financial and
consumer goals.
Money Market Account
An interest-bearing account similar to a checking account. Deposits may be added
at any time; some money
market accounts limit the withdrawals depositors may make without paying a
penalty. Also known as money
market deposit account.
Money Market Deposit Account
An interest-bearing account similar to a checking account. Deposits may be added
at any time; some money
market deposit accounts limit the withdrawals depositors may make without paying
a penalty. Also known as
money market account.
Money Market Mutual Fund (MMMF)
A fund restricted by law to investing in the short-term money market. MMMFs
provide low risk and low
returns, but they maintain their investment value.
Money Order
A certificate purchased for a specific amount of money and signed over by the
purchaser to the person or
business named on the certificate.
Money Supply
Narrowly defined by economists as currency in the hands of the public plus
checking-type deposits; also

called M1. Other definitions of the money supply (M2, M3) include various savings
deposits, money market
deposits and money market mutual fund balances.
Monopolies
Exclusive privilege or control over a service/commodity in a specific market.
Monopolistic Competition
A market structure in which slightly differentiated products are sold by a large
number of relatively small
producers, and in which the barriers to new firms entering the market are low.
Monopoly
A market structure in which there is a single supplier of a good or service. Also, a
firm that is the single
supplier of a good or service for which there are no close substitutes; also known as
a monopolist.
Monopsony
A market situation in which there is only one buyer of a resource. Also, a firm that is
the only buyer of a
resource; also known as a monopsonist.
Mortgage
A special type of loan for the purchase of a house or other real estate.
Multinational Corporation
A corporation that operates in two or more countries.
Multiplier Effect
The idea that a small increase in spending by consumers, businesses or government
can cause large changes in
economic production. The multiplier also works in reverse when spending
decreases.
Mutual Fund

A pool of money used by a company to purchase a variety of stocks, bonds or


money market instruments.
Provides diversification and professional management for investors.
N
NASDAQ
An electronic marketplace enabling buyers and sellers to get together via computer
and hundreds of thousands
of miles of high-speed data lines to trade stocks. NASDAQ used to be the acronym
for National Association
of Securities Dealers Automated Quotation System.
National Debt
The total amount owed by the national government to those from whom it has
borrowed to finance the
accumulated difference between annual budget deficits and annual budget
surpluses; also called public debt.
Natural Monopoly
An industry in which the advantages of large-scale production make it possible for a
single firm to produce
the entire output of the market at a lower average cost than a number of firms each
producing a smaller
quantity.
Natural Resources
"Gifts of nature" that can be used to produce goods and services; for example,
oceans, air, mineral deposits,
virgin forests and actual fields of land. When investments are made to improve
fields of land or other natural
resources, those resources become, in part, capital resources. Also known as land.
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.
Sometimes referred to as
"third-party cost" or "spillover cost," it is a cost imposed on third parties by the
production or consumption of
other parties.
Net Exports
Exports minus imports.
Net Pay
The amount of money a person receives within a pay period after taxes and other
deductions are taken out of
his or her paycheck.
Net Worth
The current value of a person's assets minus liabilities.
New Classical Theory
A school of thought that holds that people's expectations are important and
therefore government policies will
have a limited effect on the business cycle since individuals and firms will take
government policies into
account when making decisions. Changes in real national income are a product of
unexpected changes in the
level of prices.
New York Stock Exchange (NYSE)
The oldest stock exchange in the United States, founded in 1792.
Nominal Gross Domestic Product (GDP)
The total market value, measured in current prices, of all final goods and services
produced in a nation during
a given period of time, usually one year.
Nominal Rate of Return
The rate of return from an investment before adjusting for inflation.

Non-clearing Markets
Anti-thesis of a clearing market, a non-clearing market does not move towards
prices which balance the
quantity supplied and the quantity demanded, thereby, such markets do not clear
surpluses and shortages
(excess supply and demand.
Non-monetary Incentive
A factor not related to money, income or economic wealth that encourages people
to do something.
Non-price Competition
Competition by firms trying to attract customers by methods other than reducing
prices; examples include
advertising and promotional gifts.
Non-price Determinants
Non-price determinants can be interactions that do not affect the price of the wide
range of supply and
demand factors.
Non-sufficient Funds (NSF)
A term or notation used by banks in reference to checks written for more than the
balance in a bank
customer's checking account. An NSF is, in colloquial terms, a check that bounces.
Banks charge penalty fees
for NSF checks.
Nonexclusion
A property of certain goods and services such that (once the goods or services are
provided) they cannot be
denied to or withheld from people who have not paid for the goods or services;
examples include street lights
and national defense.
Nonprofit Organization

An organization that is exempt from federal (and sometimes state) taxes; receives
income from donors,
subsidized beneficiaries and, indirectly, taxpayers; and therefore should provide its
goods or services free or
below cost.
Normal Good
A commodity whose quantity demanded goes up when the consumer's real income
rises.
Normal Rate of Profit
Profits just high enough to compensate producers for the explicit and implicit costs
(including opportunity
costs) they incur in producing a particular good or service, without leading to any
net entry or exit by
producers in that market. Also called normal profits. Normal profits are an economic
cost of production; they
mark a point at which any lower level of profit would lead a producer to pursue
some other use of his or her
resources.
O
Occupation
A job or profession; also a category of work, sometimes identified by the degree of
skill required.
Oligopoly
A market structure in which a few, relatively large firms account for all or most of
the production or sales of a
good or service in a particular market, and where barriers to new firms entering the
market are very high.
Some oligopolies produce homogeneous products; others produce heterogeneous
products.
Open Market Operations

The buying and selling of government bonds by the Federal Reserve to control bank
reserves and the money
supply.
Operating Costs
The expenses of doing business.
Opportunity Cost
The second-best alternative (or the value of that alternative) that must be given up
when scarce resources are
used for one purpose instead of another.
Outsourcing
Sometimes called offshoring, outsourcing occurs when a firm in one country tries to
reduce costs by locating
production facilities in other countries and/or by hiring cheaper foreign workers.
Overdraft
A check written for more than the balance in one's checking account; in colloquial
terms, a check that
bounces. The bank will mark such a check NSF, for "non-sufficient funds," and will
charge a penalty fee for
the nuisance involved in handling a bounced check.
P
PACED Decision-Making Process
A decision-making process designed to help people solve problems in a rational,
systematic way. It includes
the following steps: State the Problem, List Alternatives, Identify Criteria, Evaluate
Alternatives, and Make a
Decision.
Paper Money
Certificates of various denominations generally recognized and accepted as a
medium of exchange within a

nation and elsewhere. Paper money is issued and backed by national governments
or, in the case of the euro,
by a group of governments.
Partnership
A business with two or more owners who share the firm's profits and losses.
Passbook Savings Account
A savings account offering high liquidity but usually a low rate of interest. Deposits
and withdrawals are
recorded in the saver's passbook.
Payday Loan
A loan issued to a borrower who writes a post-dated check made out to a lender
(usually a company
specializing in payday loans and other financial services targeted to low-income
customers) for the amount he
or she wishes to borrow plus a fee. The lender then gives the borrower cash in the
amount stated on the check,
minus the fee, and holds the check until the borrower's next payday, when the
lender cashes it. No credit
background check is required. The cost (in fees and interest) to those who use
payday loans is often high,
however, when calculated as an APR.
Payment Due Date
In a credit arrangement, the date by which the minimum payment must be made.
Payroll Deduction
An amount of money automatically subtracted from an employee's gross pay for
taxes, insurance, retirement
benefits, etc.
Peak
In a business cycle, a high level of output and employment, normally followed by a
decline in output and

employment.
Pegged Exchange Rate
An exchange rate that is fixed within a certain range or against a major currency or
basket of currencies.
Pension Fund
An account established by a business to fund retirement benefits for its workers.
Pension funds invest in
stocks, bonds, mutual funds and real estate.
Per Capita Gross Domestic Product (GDP)
The total market value of all final goods and services produced in an economy in a
given year divided by the
population.
Perfect Competition
A market structure in which a large number of relatively small firms produce and sell
identical products and
in which there are no significant barriers to entry into or exit from the industry. Firms
in perfect competition
are price takers and in the long run will earn only normal profits.
Perfectly Elastic Demand
A situation in which even the smallest change in price will cause consumers to
change their consumption by a
huge amount. Buyers will purchase as much of a product or resource as is available
at a constant price.
Perfectly Elastic Supply
A situation in which the smallest change in price would lead to an infinite change in
quantity supplied. Sellers
will make available as much of the product or resource as buyers will purchase at a
constant price.
Perfectly Inelastic Demand

A situation in which there is no change in the quantity demanded as the price


changes.
Perfectly Inelastic Supply
A situation in which supply will not change regardless of the change in price or the
length of time allowed for
change.
Periodic Expense
An expenditure that occurs occasionally and for which people budget money.
Periodic Income
Money received but not earned on a regular schedule--for example, from occasional
baby-sitting jobs,
summer jobs and gifts from relatives.
Personal Distribution of Income
A classification of the income received by individuals or families; shows the number
of people in various
income categories, ranging from those receiving the highest level of income to
those receiving the lowest.
Personal Resources
The time, money and skills that a person has.
Physical Capital
An asset used in production that is made by humans, but is non-human.
PIN (Personal Identification Number)
A confidential code used to access private financial information or to make
transactions (at an ATM, for
example).
Planned Economic System
An economic system where the questions of what to produce, how to produce and
for whom to produce are

answered by means of a central plan rather than by markets. In the former Soviet
Union, a State Planning
Committee (Gosplan) oversaw planning for the production and distribution of most
goods and services.
Planned Spending
Thoughtful, deliberate spending, reflecting a consumer's judgment that the benefits
to be obtained warrant the
costs to be paid.
Portfolio
A person's or an institution's collection of savings and investments.
Positive Externality
A beneficial or positive 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. Sometimes
referred to as "third-party benefit" or "spillover benefit," it is a benefit obtained
without compensation by third
parties from the production or consumption of other parties.
Potential Gross Domestic Product (GDP)
The real GDP an economy would produce if its labor and other resources were fully
employed.
Poverty
The state of being poor, variously defined. Sometimes defined relatively--by
reference, for example, to the
average household income in a nation or region. Sometimes defined absolutely--by
reference, for example, to
the income needed to provide for adequate food, housing and clothing in a nation or
region.
Premium
The fee paid for insurance protection.

Previous Balance
In a credit arrangement, last month's balance.
Price
The amount of money that people pay when they buy a good or service; the amount
they receive when they
sell a good or service.
Price Ceiling
A legally established maximum price that may be charged for a good or service.
Price Discrimination
Charging different customers different prices for the same good or service.
Price Elasticity of Demand
The responsiveness of the quantity demanded of a good or service to changes in its
price. The price elasticity
of demand is the percentage change in quantity demanded divided by the
percentage change in price.
Price Elasticity of Supply
The responsiveness of the quantity supplied of a good or service to changes in its
price. The price elasticity of
supply is the percentage change in quantity supplied divided by the percentage
change in price.
Price Floor
A legally established minimum price that may be charged for a good or service.
Price Leadership
An arrangement in an oligopolistic industry in which one firm makes pricing
decisions for the entire industry;
one firm sets the price and the other firms follow.
Price Level
The weighted average of the prices of all goods and services in an economy; used
to calculate inflation.

Price Stability
The absence of inflation or deflation; a broad social goal and criterion for measuring
the performance of an
economic system.
Price Taker
A firm that is unable to set a price that differs from the market price without losing
profit; a firm in a perfectly
competitive industry.
Primary Market
The market where new securities are offered for sale for the first time. Investment
banks buy shares of stocks
directly from corporations that issue them and sell these shares to others.
Principal
An original amount of money invested or lent.
Private Good
A good that provides benefits only to the purchaser.
Private Property
A basic institution in a market economy, private property involves the right to
exclusive use, legal protection
against invaders and the right to transfer property to other. Property rights are
defined, enforced and limited
through the process of government.
Producer Surplus
The difference between the price firms would have been willing to accept for their
products and the price they
actually receive.
Producers
People and firms that use resources to make goods and services.
Product

A good or service that can be used to satisfy a want.


Production
A process of manufacturing, growing, designing, or otherwise using productive
resources to create goods or
services used to to satisfy a want.
Production Possibilities Frontier
A table or graph that shows the full employment capacity of an economy in the form
of possible combinations
of two goods, or two bundles of goods, that could be produced with a given amount
of productive resources
and level of technology.
Productive Efficiency
A firm operating where it produces a given quantity and quality of goods at the
lowest possible cost; also
known as technical efficiency.
Productive Resources
Natural resources, human resources, capital resources and entrepreneurship used to
make goods and services.
Productivity
The amount of output (goods and services) produced per unit of input (productive
resources) used.
Profit
Income received for entrepreneurial skills and risk taking, calculated by subtracting
all of a firm's explicit and
implicit costs from its total revenues.
Profit Maximization
Where MR = MC; profit is at a maximum when marginal revenue equals marginal
cost.
Profit Motive

The desire to make money which motivates or causes people to work hard to
produce goods and services.
Progressive Tax
A tax that take a larger percentage of income from people in higher-income groups
than from people in lowerincome
ones; the U.S. federal income tax is an example.
Property Rights
Legal protection for the boundaries and possession of property. Assigning of
property rights to individuals,
collectives or governments depends on the economic system.
Property Tax
A tax on land and structures built on it. Payments go to state and/or local
governments to pay for police
protection, public schools, libraries, etc.
Proportional Tax
A tax that takes the same percentage of income from people in all income groups.
Public Goods
Goods, often supplied by the government, for which use by one person does not
reduce the quantity of the
good available for others to use, and for which consumption cannot be limited to
those who pay for the good.
Public-Choice Analysis
The study of decision making as it affects the organization and operation of
government and other collective
organizations. Involves the application of economic principles to political science
topics.
Purchases
In a credit arrangement, the total amount spent during the billing cycle.
Purchasing Power

The amount of goods and services that a monetary unit of income can buy.
Pyramid Scam
An illegal scheme of selling goods. Participants are recruited by advertisements
offering big profits to those
who pay a fee for agency rights, that is, rights to sell goods as a representative of
the pyramid company. Each
recruited agent then recruits others to join, with each new participant paying a fee
to join. The key is that each
person is promised commissions not only on his or her sales but on the sales of
other people they recruit as
distributors.
Q
Quality Comparison
Examining products to learn whether one is better than others.
Quantity Demanded
The amount of a good or service people will buy at a given price in a given period of
time.
Quantity Supplied
The amount of a good or service sellers are willing and able to offer at a given price
in a given period of time.
Quotas
In international trade, the limit on the quantity of a product that may be imported or
exported, established by
government laws or regulations; in command economies, more typically a
production target assigned by
government planning agencies to the producers of a good or service.
R
Rate of Return
Earnings from an investment, stated as a percentage of the amount invested;
usually calculated on an annual

basis.
Rational Expectations
Expectations about the future rate of inflation or other economic events that people
form using all available
information, including predictions about the effect of present and future policy
actions by the government.
Rational Expectations Theory
A branch of New Classical theory which holds that firms and individuals have
rational expectations about the
economy and government policies and thus may pursue their own interests in such
a way as to render those
policies ineffective.
Rational Ignorance
A decision not to obtain information about political issues or candidates because the
costs of doing so
outweigh the benefits.
Real Estate
Property such as land, houses and office buildings.
Real Estate Tax
A tax on land and structures built on it (houses, factories, etc.). Payments go to
state and/or local governments
to pay for police protection, public schools, libraries, etc.
Real Gross Domestic Product (GDP)
GDP measured in dollars of constant purchasing power. The measure is obtained by
adjusting nominal GDP
(GDP measured in current prices) by an appropriate price index, usually the implicit
price deflator. Often used
as a measure of economic activity.
Real Interest Rates

The nominal (posted) interest rate minus the rate of inflation.


Real vs. Nominal
Two ways of expressing monetary values. Nominal monetary values are measured in
current prices; real
monetary values are measured in constant prices, that is, in prices of a given or
base period. Real monetary
values are obtained by adjusting nominal monetary values with an appropriate
index of prices.
Real Wage
The wage rate adjusted for inflation; the purchasing power of wages, the volume of
goods and services that
money wages will buy.
Recession
A decline in the rate of national economic activity, usually measured by a decline in
real GDP for at least two
consecutive quarters (i.e., six months).
Recessionary Gap
The amount by which the aggregate expenditures curve must increase (shift
upward) to increase the real GDP
to the full-employment noninflationary level.
Redistribution of Income
The transfer of income (in cash or in kind) through government taxation, spending
and assistance programs
targeted at particular income groups, and programs designed to provide training to
workers or to encourage
private investments in education or other kinds of human capital. The goal is to
transfer money from higherincome
groups to lower-income groups.
Regressive Tax

A tax that takes a larger percentage of income from people in lower-income groups
than from higher-income
ones. Sales taxes and excise taxes are examples.
Regulation
Economic regulation is the prescription of price and output for a specific industry,
often a natural monopoly.
Social regulation is the prescription of health, safety, performance, environmental,
output and job standards
across several industries.
Relative Price
The price of one good in relation to the price of another good; a measure of
opportunity costs and therefore
the price that affects economic decision making.
Rent to Own
An arrangement whereby consumers rent something (often furniture), making
regular rental payments, and
become owners of the rented object(s) after a specified period of time--sometimes
automatically and
sometimes with an additional payment. A legal business but very costly to
consumers.
Required Reserves
The minimum amount of cash reserves (a percentage of the deposits) in dollars that
a bank is required by law
to keep on hand or with the Federal Reserve.
Reserve Requirements
The fraction of banks' deposits that they are required by law to keep on hand or
with the Federal Reserve.
Resources
The basic kinds of resources used to produce goods and services: land or natural
resources, human resources

(including labor and entrepreneurship), and capital.


Resume
A document describing a job-seeker to prospective employers. Usually includes the
job-seeker's name,
telephone number, address, e-mail address, career objective, education, work
experience, abilities, awards,
offices held in organizations and special interests.
Retirement Accounts
Accounts such as IRAs (Individual Retirement Accounts), SEPs (Simplified Employee
Pension Plans) and
Keogh Plans that allow individuals to save money toward retirement on a taxdeferred basis.
Return
Earnings from an investment, usually expressed as an annual percentage.
Revenue
The money a business receives from customers who buy its goods and services. Not
to be confused with
profit.
Risk
The chance of losing money.
Risk of Financial Loss
The chance that the value of an investment (the principal) will decrease.
Risk/Reward Ratio
As applied to investments: the greater the risk, the greater the potential reward. For
example: passbook
savings accounts offer depositors very low risk but also low rates of interest; growth
stocks are much riskier,
but they offer a potential for big gains.
Role of Government

Government activity in establishing a framework or rules of the game in economic


life. In the United States,
this activity involves preserving and fostering competition, regulating natural
monopolies, providing
information and services to enable the market to work better, regulating
externalities, providing certain public
goods, offering some economic security and income redistribution to individuals,
assuring a sound monetary
system and promoting overall economic stability and growth.
Rule of 72
A mathematical rule for determining the number of years it will take for an
investment to double in value. The
number of years is determined by dividing 72 by the annual rate of return. Thus, an
investment expected to
earn interest at a rate of 8 percent will double an investor's funds in 72/8, or nine
years. Dividing 72 by the
number of years in which an investor wishes to double his or her return will yield the
necessary rate.
S
Salaries
Payments for labor resources; unlike wages, not explicitly based on the number of
hours worked. See also
Wages.
Salary
A regular payment, often at monthly or biweekly intervals, made by an employer to
an employee, especially
in the case of professional or white-collar employees. Salaries are paid for services
rendered and are not based
on hours worked.
Sale
An exchange of goods or services for money.

Sales Revenue
The money a business receives from customers who buy its goods and services. Not
to be confused with
profit.
Sales Tax
Tax in the form of a percent of the cost of a good or service; paid to local and state
governments when goods
and services are purchased.
Save
To keep money for future use; to divert money from current spending to a savings
account or another form of
investment.
Savers
Persons who desire to conserve their monetary funds to the best of their ability.
Saving
Disposable income (income after taxes) minus consumption spending.
Savings
Money set aside for a future use that is held in easily-accessed accounts, such as
savings accounts and
certificates of deposit (CDs).
Savings Account
An interest-bearing account (passbook or statement) at a financial institution.
Savings Bond
Securities issued by the U.S. Treasury in relatively small denominations for
individual investors. Investors
who buy savings bonds in effect make a loan to the government, in return for the
government's promise
(represented by the bond, a nontransferable debt certificate) to repay the loan with
interest. The interest is free

from state and local taxation. Savings bonds are considered to be risk-free
investments, since they are backed
by the U.S. government.
Savings Instruments
Arrangements by means of which people save money, including savings accounts,
certificates of deposit
(CDs), money market deposit accounts and U.S. Savings Bonds.
Savings Plan
A plan for setting aside money for future use.
SCANS Skills
Guidelines for workplace success developed by the U.S. Department of Labor
Secretary's Commission on
Achieving Necessary Skills in 1992. The Commission determined that success in any
occupation requires
basic skills (reading, writing and math), thinking skills, personal qualities,
interpersonal skills and the ability
to acquire and use resources, information systems and technology.
Scarcity
The condition that exists because human wants exceed the capacity of available
resources to satisfy those
wants; also a situation in which a resource has more than one valuable use. The
problem of scarcity faces all
individuals and organizations, including firms and government agencies.
Secondary Effects
Effects indirectly related to a course of action whose influence will only be seen or
felt later in time.
Secondary Market
A market in which stocks can be bought and sold once they are approved for public
sale; for example, the
New York Stock Exchange.

Secured Debt
Credit with collateral (for example, a house or a car) for the lender.
Service Charge
A fee charged by a financial institution for certain financial services provided to
customers.
Services
Activities performed by people, firms or government agencies to satisfy economic
wants.
Shared Consumption
A property of a good or service such that it can be used by many without
diminishing another's ability to
consume the same good; examples include street lights and radio broadcasts.
Short Run
A period of time long enough for existing firms to change some--but not all--of the
resources they use.
Short-Term Goal
Something a person or organization plans to achieve within a one-year time period.
Shortage
The situation that results when the quantity demanded for a product exceeds the
quantity supplied. Generally
happens because the price of the product is below the market equilibrium price.
Signature Card
A document bearing a person's signature, held on file in a financial institution. In
cases of suspected forgery,
signatures of doubtful origin can be checked against those recorded on signature
cards.
Simple Interest
Interest paid on the initial investment (the principal) only. Calculated by multiplying
the investment principal

times the annual rate of return times the number of years involved.
Simplified Employee Pension (SEP) Plan
A qualified, tax-deferred retirement plan for an individual with a small business.
Social Security
A federal system of old-age, survivors', disability and hospital care (Medicare)
insurance which requires
employers to withhold (or transfer) wages from employees' paychecks and deposit
that money in designated
accounts.
Social Security Tax
A tax levied on employers and employees to finance public Social Security benefits.
Sole Proprietorship
A business owned by one person who receives all the profits and is responsible for
all the debts incurred by
the business.
Special Interest Group
An organization of people with a particular legislative concern. They work together
to gather information,
lobby politicians and publicize their concern.
Specialization
A situation in which people produce a narrower range of goods and services than
they consume.
Specialization increases productivity; it also requires trade and increases
interdependence.
Spend
Use money now to buy goods and services.
Spending Diary
A record of spending over a period of time.
Spillover Benefit

A beneficial or positive 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. Sometimes
referred to as "third-party benefit" or "positive externality."
Spillover Cost
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.
Sometimes called "third-party cost"
or "negative externality."
Standard of Living
The level of subsistence of a nation, social class or individual with reference to the
adequacy of necessities
and comforts of daily life.
State Income Tax
A percentage of income paid by individuals and businesses to a state government to
fund services such as
roads, safety and health. Not all states levy an income tax.
Statement Closing Date
In a credit arrangement, the date of the last purchase billed on the statement.
Statement Savings Account
A savings account for which the bank sends a statement detailing deposits,
withdrawals and interest earned
once a month or once a quarter. Interest rates for statement accounts are usually
lower than rates for other
savings instruments, but a depositor can open a statement account with very little
money and can also
withdraw money from a statement account at any time.
Stock

An ownership share or shares of ownership in a corporation.


Stock Market
A market in which the public trades stock that someone already owns; the buying
and selling of stock.
Stock Mutual Fund
A mutual fund that buys stocks in order to make profits for the investors.
Structural Unemployment
The type of unemployment resulting from people's present abilities, skills, training
and location not matching
up with available job openings that reflect the basic structure of the economy.
Substitute
A good or service that may be used in place of another good or service; examples
include tap water for bottled
water (or vice versa) and movies for concerts (or vice versa).
Substitute Good
A good that can be consumed or used in the place of another good with minimal
differences.
Substitute Goods and Services
Goods or services that may be used in place of another good or service; examples
include tap water for bottled
water (or vice versa) and movies for concerts (or vice versa).
Supply
The amount of a good or service that producers are willing and able to offer for sale
at each possible price
during a given period of time. Normally, as the price of a good or service rises (or
falls), the quantity supplied
of the good or service rises (or falls).
Supply-Side Fiscal Policy

Policy intended to increase an economy's productive capacity by shifting aggregate


supply; e.g., a tax cut
giving businesses an incentive to invest and expand.
Surplus
The situation that results when the quantity supplied of a product exceeds the
quantity demanded. Generally
happens because the price of the product is above the market equilibrium price.
T
Take-Home Pay
The amount of money a person receives within a pay period after taxes and other
deductions are taken out of
his or her paycheck.
Tariff
A tax on an imported good or service.
Tax Incidence
A measure of who actually pays a tax.
Tax Loophole
An omission or ambiguity in the tax law that allows some people to legally avoid
paying certain taxes.
Taxation
Taxation is the process in which a charge is imposed upon a taxpayer by a state or a
legal equivalent of a state.
Taxes
Compulsory payments to governments by households and businesses.
Technological Changes
Improvements in a firm's ability to produce due to improved processes, methods
and machines.
Three Cs of Credit

Three characteristics that determine a person's qualifications for obtaining a loan:


Capital: Assets owned.
Character: A person's past history in repaying debts. Capacity: A person's current
and future earnings relative
to current debt.
Tools of the Federal Reserve
The tools of the Federal Reserve are wide-ranging. They include: Open Market
Operations, Overnight
Lending Through the Discount Window, The New Term Auction Facility, and
Changing the federal funds rate
target to respond to macroeconomic risk.
Total Available Credit
In a credit arrangement, the total credit line minus the new balance.
Total Cost (TC)
All costs associated with producing a good or service; the sum of total fixed costs
plus total variable costs.
Total Credit Line
In a credit arrangement, the maximum amount that can be charged on the credit
account.
Total Revenue (TR)
All money received from selling a good or service; the price times the quantity sold
of each item.
Trade
The exchange of goods and services for money or other goods and services.
Trade Barriers
Restrictions that prevent free trade among nations. Examples include tariffs, import
and export quotas, and
nontariff restrictions such as licensing requirements and bureaucratic red tape.
Trade-off

The giving up of one benefit or advantage in order to gain another regarded as


more favorable.
Trade-offs among Goals
An economic analysis of calculating costs of achieving a goal verses the value of
expected benefits of the
goal. The results will help make clear-minded decisions whether or not to pursue a
goal.
Traditional Economy
An economy in which customs and habits from the past are used to resolve most
economic issues of
production and distribution.
Tragedy of the Commons
Overuse or misuse of a commonly-owned resource, such as public grazing land or
fishing waters.
Transaction Costs
Costs associated with buying or selling goods and services that are not included in
the money prices of those
goods and services. Examples include obtaining information on prices and product
quality, searching for
sellers, and bargaining costs.
Transfer Payments
Money collected by the government from one group and given to others. Examples
include Social Security
benefits, unemployment insurance payments and agricultural subsidies.
Transition Economy
An economy that is moving from one economic system to another. The term usually
refers to the movement
from a planned economic system into a competitive market system.
Trough

In a business cycle, a low level of output and employment, normally followed by a


rise in output and
employment.
Truth in Lending Act
A federal law that requires creditors to disclose finance charges and interest rates in
a standard, uniform
manner.
Types of Unemployment
Their are varying types and degrees of unemployment. Cyclical unemployment
occurs with downturns in the
economy and evaporates when the economy rebounds. Frictional unemployment
details people who are
unemployed while transitioning between jobs. Structural unemployment deals with
an offset of skilled
workers and available jobs. Seasonal unemployment is another situation in which
skilled workers are
mismatched with the number of jobs. Hidden unemployment the unemployment of
potential workers, which is
not reflected in official statistics. Hardcore unemployment describes persons who
may be unemployable due
to physical or mental incapacitation.
U
U.S. Savings Bonds
Securities issued by the U.S. Treasury in relatively small denominations for
individual investors. Investors
who buy U.S. Savings Bonds in effect make a loan to the government, in return for
the government's promise
(represented by the bond, a nontransferable debt certificate) to repay the loan with
interest. The interest is free
from state and local taxation. U.S. Savings Bonds are considered to be risk-free
investments, since they are

backed by the U.S. government.


Unemployment
The number of people without jobs who are actively seeking work.
Unemployment Rate
The number of unemployed people, expressed as a percentage of the labor force.
Unintended Consequences
The unexpected and unplanned results of a decision or action.
Unit Pricing
The cost per unit of measurement. A way for consumers to compare the costs of
different sizes of the same
item.
Unplanned Spending
Impulsive use of money with little or no consideration of alternatives and resulting
in unplanned
consequences.
Unsecured Debt
Debt without collateral; credit card debt, for example.
Usury Law
A law which establishes a maximum permissible interest rate for a particular type of
loan. Loans at rates
above the usury ceiling are illegal.
Utility
An abstract measure of the satisfaction consumers derive from consuming goods
and services.
V
Value Added
The difference between the value of output and the value of the intermediate goods
used in the production of

that output.
Value of Money
The ability of money to buy goods and services. A wide variety of items has been
used as money. Money need
not have any intrinsic value. It is people's willingness to accept it that gives it value.
Variable Costs (VC)
Costs of production that change as a firm's output level changes.
Variable Expenses
Expenditures that change from week to week or month to month--for food, clothing,
recreation and
entertainment, for example.
Variable Income
Income that varies from week to week or month to month.
Velocity of Money
The average number of times each dollar is spent on final goods and services in a
year.
Vertical Merger
A combination formed when two businesses, one of which supplies an ingredient of
the other's product,
merge.
Voluntary Exchange
Trading goods and services with other people because both parties expect to benefit
from the trade.
Voluntary Trade
Trading goods and services with other people because both parties expect to benefit
from the trade.
W
W-2 Form

A federal income tax document that employers complete and send to their
employees and to the Internal
Revenue Service at the end of a year; shows employee compensation and taxes
withheld.
W-4 Form
A federal income tax document that instructs an employer about how much money
to withhold from an
employee's paycheck for tax purposes.
Wage
Payments for labor services that are directly tied to time worked, or to the number
of units of output produced.
Wants
Desires that can be satisfied by consuming or using a good or service. Economists
do not differentiate
between wants and needs.
Withdrawal
The removal of money by a depositor from a financial account.
Withholding
Money taken out of an employee's paycheck and sent to the government and
credited to the employee's tax
bill.
Work
Effort applied to achieve a purpose or result, often for pay; skills and knowledge put
to use to get something
done; employment at a job or in a position; occupation, profession, business, trade,
craft, etc.
Work Ethic
A system of values in which central importance is ascribed to work and to qualities
of character believed to be
promoted by work; a sense of responsibility for doing a job well.

Work Skills
Ability to do things demanded in particular jobs.
Workers
People employed to do work, producing goods and services.
World Bank
An international organization that makes loans and provides technical expertise to
developing nations.
World Trade Organization (WTO)
A trade agreement among over 100 nations that specifies the level of tariffs among
the signatories and
attempts to resolve trade disputes.

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