Glossary Number 1.docx

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Glossary Number 1

source :http://www.economicswisconsin.org/guide/glossary.htm

Glossary of Economic Terms and Concepts

Absolute advantage - The ability to produce something with fewer resources than other

producers would use to produce the same thing

Alternatives - Options among which to make choices.

Balance of trade - The part of a nation's balance of payments that deals with merchandise (or

visible) imports or exports.Bank, commercial - A financial institution accepts checking deposits, holds savings, sells

traveler's checks and performs other financial services.

Barter - The direct trading of goods and services without the use of money.

Benefit - The gain received from voluntary exchange.

Bond - A certificate reflecting a firm's promise to pay the holder a periodic interest payment until

the date of maturity and a fixed sum of money on the designated maturity date.

Business (firm) - Private profit-seeking organizations that use resources to produce goods and

services.

Capital - All buildings, equipment and human skills used to produce goods and services.

Capital resources - Goods made by people and used to produce other goods and services.

Examples include buildings, equipment, and machinery.

Change in demand - see Demand decrease and Demand increase.

Change in supply - see Supply decrease and Supply increase.

Choice - What someone must make when faced with two or more alternative uses of a resource

(also called economic choice).

Circular flow of goods and services (or Circular flow of economic activity) - A model of aneconomy showing the interactions between households and business firms as they exchange

goods and services and resources in markets.

Collateral - Anything of value that is acceptable to a lender to guarantee repayment of a loan.

Command economy - A mode of economic organization in which the key economic functions--

what, how, and for whom--are principally determined by government directive. Sometimes

called a "centrally planned economy."
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Comparative advantage - The principle of comparative advantage states that a country will

specialize in the production of goods in which it has a lower opportunity cost than other

countries.

Competition - The effort of two or more parties acting independently to secure the business of a

third party by offering the most favorable terms.

Complements - Products that are used with one another such as hamburger and hamburger buns

Consumers - People whose wants are satisfied by consuming a good or a service.

Consumption - In macroeconomics, the total spending, by individuals or a nation, on consumer

goods during a given period. Strictly speaking, consumption should apply only to those goods

totally used, enjoyed, or "eaten up" within that period. In practice, consumption expenditures

include all consumer goods bought, many of which last well beyond the period in question --e.g.,

furniture, clothing, and automobiles.

Consumer spending - The purchase of consumer goods and services.

Corporation - A legal entity owned by stockholders whose liability is limited to the value of their

stock.Costs - See Opportunity Cost

Costs of production - All resources used in producing goods and services, for which owners

receive payments.

Craftsperson - A worker who completes all steps in the production of a good or service.

Credit - (1) In monetary theory, the use of someone else's funds in exchange for a promise to pay

(usually with interest) at a later date. The major examples are short-term loans from a bank,

credit extended by suppliers, and commercial paper. (2) In balance-of-payments accounting, an

item such as exports that earns a country foreign currency.

Criteria - Standards or measures of value that people use to evaluate what is most important.

Decision making - Choosing from alternatives the one with the greatest benefit net of costs.

Deflation - A sustained and continuous decrease in the general price level.

Demand - A schedule of how much consumers are willing and able to buy at all possible prices

during some time period.

Demand decrease - A decrease in the quantity demanded at every price; a shift to the left of the

demand curve.

Demand increase - An increase in the quantity demanded at every price; a shift to the right of the

demand curve.

Determinants of demand - Factors that influence consumer purchases of goods, services, or

resources.

Determinants of supply - Factors that influence producer decisions about goods, services, or

resources.

Distribution - The manner in which total output and income is distributed among individuals or

factors (e.g., the distribution of income between labor and capital).


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Division of labor - The process whereby workers perform only a single or a very few steps of a

major production task (as when working on an assembly line.)

Durables - Consumer goods expected to last longer than three years.

Earn - Receive payment (income) for productive efforts.

Economic growth - An increase in the total output of a nation over time. Economic growth is

usually measured as the annual rate of increase in a nation's real GDP.

Economic system - The collection of institutions, laws, activities, controlling values, and human

motivations that collectively provide a framework for economic decision making.

Economic wants - Desires that can be satisfied by consuming a good or a service. Some

economic wants range from things needed for survival to things that are nice to have.

Employment - See Full employment

Entrepreneur - One who organizes, manages, and assumes the risks of a business or enterprise.

Entrepreneurship - The human resource that assumes the risk of organizing other productiveresources to produce goods and services.

Equilibrium price - The market clearing price at which the quantity demanded by buyers equals

the quantity supplied by sellers.

Exchange - Trading goods and services with others for other goods and services or for money

(also called trade). When people exchange voluntarily, they expect to be better off as a result.

Exchange rates - The rate, or price, at which one country's currency is exchanged for the

currency of another country.

Excise Tax - Taxes imposed on specific goods and services, such as cigarettes and gasoline.

Exports - Goods or services produced in one nation but sold to buyers in another nation.

Factors of production - Resources used by businesses to produce goods and services.

Federal Reserve System - The central bank and monetary authority of the United States.

Final goods - Products that end up in the hands of consumers.

Fiscal policy - A government's program with respect to (1) the purchase of goods and services

and spending on transfer payments, and (2) the amount and type of taxes.

Functions of money - The roles played by money in an economy. These roles include medium of

exchange, standard of value, and store of value.

Full employment - A term that is used in many senses. Historically, it was taken to be that level

of employment at which no (or minimal) involuntary unemployment exists. Today economists

rely upon the concept of the natural rate of unemployment to indicate the highest sustainable

level of employment over the long run.

Goods - Objects that can satisfy people's wants.

Government - National, state and local agencies that use tax revenues to provide goods and


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services for their citizens.

Gross domestic product (GDP) - The value, expressed in dollars, of all final goods and services

produced in a year.

Gross domestic product (GDP), real - GDP corrected for inflation.

Households - Individuals and family units which, as consumers, buy goods and services from

firms and, as resource owners, sell or rent productive resources to business firms.

Human capital - The health, strength, education, training, and skills which people bring to their

jobs.

Human resources - The quantity and quality of human effort directed toward producing goods

and services (also called labor).

Incentives - Factors that motivate and influence the behavior of households and businesses.Prices, profits, and losses act as incentives for participants to take action in a market economy.

Imports - Goods or services bought from sellers in another nation.

Income - The payments made for the use of borrowed or loaned money.

Increase in productivity - When the same amount of an output can be produced with fewer

inputs; more output can be produced with the same amount of inputs; or a combination of the

two.

Inflation - A sustained and continuous increase in the general price level.

Interdependence - Dependence on others for goods and services; occurs as a result of

specialization.

Interest rates - The price paid for borrowing money for a period of time, usually expressed as apercentage of the principal per year.

Investment in capital goods - Occurs when savings are used to increase the economy's productive

capacity by financing the construction of new factories, machines, means of communication, and

the like.

Investment - The purchase of a security, such as a stock or bond.

Investment in capital resources - Business purchases of new plant and equipment.

Investment in human capital - An action taken to increase the productivity of workers. These

actions can include improving skills and abilities, education, health, or mobility of workers.

Labor force - That group of people 16 years of age and older who are either employed or

unemployed.

Labor market - A setting in which workers sell their human resources and employers buy human

resources.

Labor union - A group of employees who join together to improve their terms of employment.


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Land - Natural resources or gifts of nature that are used to produce goods and services.

Law of demand - The principle that price and quantity demanded are inversely related.

Law of supply - The principle that price and quantity supplied are directly related.

Loss - Business situation in which total cost of production exceeds total revenue; negative profit.

Market - A setting where buyers and sellers establish prices for identical or very similar

products, and exchange goods and/or services.

Market economy - An economic system where most goods and services are exchanged through

transactions by private households and businesses. Prices are determined by buyers and sellers

making exchanges in private markets.

Medium of exchange - One of the functions of money whereby people exchange goods and

services for money and in turn use money to obtain other goods and services.

Mixed economy - The dominant form of economic organization in noncommunist countries.

Mixed economies rely primarily on the price system for their economic organization but use avariety of government interventions (such as taxes, spending, and regulation) to handle

macroeconomic instability and market failures.

Monetary policy - The objectives of the central bank in exercising its control over money,

interest rates, and credit conditions. The instruments of monetary policy are primarily open-

market operations, reserve requirements, and the discount rate.

Money - Anything that is generally accepted as a medium of exchange with which to buy goods

and services, a good that can be used to buy all other goods and services, that serves as a

standard of value, and has a store of value.

Money market - A term denoting the set of institutions that handle the purchase or sale of short-

term credit instruments like Treasury bills and commercial paper.

National debt - The net accumulation of federal budget deficits.

National income - The amount of aggregate income earned by suppliers of resources employed

to produce GNP; net national product plus government subsidies minus indirect business taxes.

Natural resources - "Gifts of nature" that are used to produce goods and services. They include

land, trees, fish, petroleum and mineral deposits, the fertility of soil, climatic conditions for

growing crops, and so on.

Non-durables - Consumer goods expected to last less than three years.

Non-price determinants of supply - The factors that influence the amount a producer will supply

of a product at each possible price. The non-price determinants of supply are the factors that can

change the entire supply schedule and curve.

Normal profit - The minimum payment an entrepreneur expects to receive to induce the

entrepreneur to perform entrepreneurial functions.

Normative economics - Normative economics considers "what ought to be"--value judgments, or

goals, of public policy. Positive economics, by contrast, is the analysis of facts and behavior in


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an economy, or "the way things are."

Opportunity cost - The next best alternative that must be given up when a choice is made.

Physical capital - Manufactured items used to produce goods and services.

Price - The money value of a unit of a good, service, or resource

Prices - The amounts that people pay for units of particular goods or services.

Private goods - A commodity that benefits the individual. An example is bread, which, if

consumed by one person, cannot be consumed by another person. (See public goods.)

Producers - People who use resources to make goods and services (also called workers).

Production - The making of goods available for use; total output especially of a commodity or

industry.

Productive resources - All natural resources (land), human resources (labor), and human-maderesources (capital) used in the production of goods and services.

Productivity - The ratio of output (goods and services) produced per unit of input (productive

resources) over some period of time.

Profit - The difference between total revenues and the full costs involved in producing or selling

a good or service; it is a return for risk taking.

Property tax - Taxes paid by households and businesses on land and buildings.

Public goods - A commodity whose benefits are indivisibly spread among the entire community,

whether or not particular individuals desire to consume the public good. For example, a public-

health measure that eradicates smallpox protects all, not just those paying for the vaccinations.

These goods are often provided by the government. To be contrasted with private goods.

Quantity demanded - The amount of a product consumers will purchase at a specific price.

Quota - A legal limit on the quantity of a particular product that can be imported or exported.

Quantity supplied - The amount of a product producers will produce and sell at a specific price.

Resources - All natural, human, and human-made aids to production of goods and services (also

called productive resources).

Revenue - Payments received by businesses from selling goods and services.

Sales tax - Taxes paid on the goods and services people buy.

Save - Set aside earnings (income) for a future use.

Saving - Occurs when individuals, businesses, and the economy as a whole do not consume all of


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current income (or output).

Scarcity - The condition that results from the imbalance between relatively unlimited wants and

the relatively limited resources available for satisfying those wants.

Services - Activities that can satisfy people's wants.

Shortage - The situation resulting when the quantity demanded exceeds the quantity supplied of a

good or service, usually because the price is for some reason below the equilibrium price in the

market.

Specialists - People who produce a narrower range of goods and services than they consume

(also called specialized workers).

Specialization - The situation in which people produce a narrower range of goods and services

than they consume.

Spend - Use earnings (income) to buy goods and services.

Standard of living - A minimum of necessities, comforts, or luxuries held essential to

maintaining a person or group in customary or proper status or circumstances.

Standard of value - One of the functions of money whereby the value of goods and services isexpressed in money terms (prices).

Stock - A certificate reflecting ownership of a corporation.

Store of value - One of the functions of money allowing people to save current purchasing power

to buy goods and services in a future time period.

Substitutes - Products that can replace one another such as butter and margarine.

Supply - A schedule of how much producers are willing and able to sell at all possible prices

during some time period.

Supply decrease - A decrease in the quantity supplied at every price; a shift to the left of the

supply curve.

Supply increase - An increase in the quantity supplied at every price; a shift to the right of thesupply curve.

Surplus - The situation resulting when the quantity supplied exceeds the quantity demanded of a

good or service, usually because the price is for some reason below the equilibrium price in the

market.

Tariff - A tax on an imported good.

Taxes - Required payments of money made to governments by households and business firms.

Total cost - Cost of resources used in producing a product multiplied by the quantity produced.

Total revenue - Selling price of a product multiplied by the quantity demanded.

Trade - See Exchange.

Trade agreement - An international agreement on conditions of trade in goods and services.

Trade-off - Giving up some of one thing to get some of another thing.

Traditional economy - A mode of economic organization which borrows economic decisions

made at an earlier time or by an earlier generation


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Unemployment - The situation in which people are willing and able to work at current wage

rates, but do not have jobs.

Wages - The payment resource earners receive for their labor.

Work - Employment of people in jobs to make goods or services.

Workers - See Producers.

Terms and definitions from the following sources:

Coulson, E., McCorkle, S. (1994). Master curriculum guide in economics: Teaching strategies 5-

6. New York: Economics America.

McEachern, W. A. (1994). Economics: A contemporary introduction, 3rd ed. Cincinnati, Ohio:South Western Publishing Co.

Phipps, B. J., Hopkins, M. C., Littrell, R. L. (1993). Master curriculum guide in economics:

Teaching strategies K-2. New York: Economics America.

Samuel, C., Stout, R. L. (1994). Master curriculum guide in economics: Teaching strategies 3-4.

New York: Economics America.

Samuelson, P.A., Nordhaus, W. D. (1995). Economics, 15th ed. New York: McGraw-Hill, Inc.

Saunders, P., Gilliard, J., (editors). (1995). A framework for teaching basic economic concepts:

With scope and sequence guidelines. New York: Economics America.

Suitor, M. C., et al. (1996). Focus: Middle school economics. New York: Economics America.

Webster's ninth new collegiate dictionary. (1991). Springfield, Mass.: Merriam-Webster, Inc.

Glossary Number 2

source :http://www.econedlink.org/economic-r...s/glossary.php

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 AdvantageThe 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.
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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.

AdvertisingUsing 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 atdifferent 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.


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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 ReturnIncome earned on an investment in a year, divided by the amount of the original investment.

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.

AssetSomething 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 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)


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Total fixed costs divided by the amount produced.

Average Revenue (AR)

Total revenue divided by the amount produced.

Average Variable Cost (AVC)

Total variable costs divided by the quantity produced.

BBait 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) betweenindividuals, 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 thecountry 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


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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 foroverdrafts 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.


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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.

BrandA 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.


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Business

Any activity or organization that produces or exchanges goods or services for a profit.

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 forthese resources represent household income. Households spend their income for goods and

services produced by the businesses; household spending represents revenue for businesses.

CCapacity

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.

CapitalResources 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.


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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 AdvanceIn 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


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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 RegisterA 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


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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 MarketThe 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


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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.

CompoundingPaying 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 acollision (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


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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 valueof 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


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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 aprospective 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.


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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.

CreditorA 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, thegoods 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


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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 pricesduring 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."

DepositMoney 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 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.


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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.


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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.

EEarned 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 throughopen 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.


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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.


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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 DemandPrice 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


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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


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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.

FFactor 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.


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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


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(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 RiskThe 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.


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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 InvestmentThe 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, usuallyfinancial.

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.


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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.

GGains 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.

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.


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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.

HHeterogeneous 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.


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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 humanresources.

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.

IIdentity 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.


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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 current-price 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 dosomething.

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


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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 RiskThe 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


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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.


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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.

JJob

A piece of work usually done on order at an agreed-upon rate. Also a paid position of regular

employment.

KKeogh 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


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undertaken to promote economic stability.

LLabor

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 ofworker 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 improvefields 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


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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 EconomyThe 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.


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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 sella 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.


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Long-Term Goal

Something a person or organization plans to achieve at least five years in the future.

MMacroeconomic 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 economicpolicies, 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.


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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 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.


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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 outp

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