| A | B |
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| the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices | opportunity cost |
| market in which land, labor, capital, or entrepreneurship are sold by households to businesses | factor market |
| market in which goods and services are sold to households by businesses | product market |
| a concept within economic theory describing when the allocation of goods and services by a free market is not efficient | market failure |
| A consequence of an economic activity that is experienced by unrelated third parties; a person who has a runway built next to their house is an example | externality |
| an item provided by some level of the government; roads, tanks, libraries are examples | public good |
| an economic model showing the movement of money and goods between households and producers (businesses) | circular flow model |
| an economic model showing all the different levels of production an economy can prouduce of two types of products | production possibilities frontier (curve) |
| expansion of an economy over time; measured by increase in real GDP | economic growth |
| market structure in which there are many suppliers all selling identical products; farmers' market is example | perfect competition |
| a market structure in which there are many suppliers selling slightly different versions of the same product; shoe companies, toothpaste companies; suppliers use product differentiation or branding | monopolistic competition |
| a market structure in which there are only a few suppliers; subject to price wars or price fixing; airlines are an example | oligopoly |
| market structure in which there is only one supplier; may be natural, technological, or patent; utility company is an example | monopoly |
| the life blood of a business; revenue that exceeds the operating costs of running a business; the reason entrepreneurs take risks | profit |
| an individual who starts and runs their own business; a hero; a risk-taker | entrepreneur |
| a type of business owned by shareholders (stockholders); shareholders have limited liability | corporation |
| a type of business owned by two or more persons who share responsibilities and also share unlimited liability | partnership |
| a type of business owned by only one person; disadvantages include unlimited liability and limited access to capital | sole proprietorship |
| a measurement of how responsive the quantity demanded or supplied of a product is to a change in the products price | elasticity |
| quantity demanded is greater than the quantity supplied | shortage |
| quantity demanded is less than the quantity supplied | surplus |
| a price level artificially set below the equilibrium price; leads to a shortage | price ceiling |
| a price set by a government body that is above the equilibrium price; results in a shortage | price floor |
| something that motivates a person to do something | incentive |
| price point at which the quantity demanded equals the quantity supplied; also called market clearing price | equilibrium price |
| amount of a good consumers are willing and able to purchase at all possible prices | demand |
| amount of a good producers are willing to bring to market at all possible prices | supply |
| economic system that combines elements of market and command economies | mixed economy |
| economic system where government owns the factors of production and decides the answers to the three economic questions | command economy |
| economic system in which property is privately owned; characterized by economic freedom; also known as capitalist economy | market economy |
| factor of production that puts together all other factors of production to produce goods or services; goal is to make a profit | entrepreneurship |
| factor of production: tools used to produce goods or services; the money used to buy those tools | capital |
| factor of production: work | labor |
| factor of production: natural resources, real estate, livestock, etc. | land |
| basic economic condition of unlimited wants but limited resources | scarcity |
| the hypothetical unemployment rate consistent with aggregate production being at the "long-run" level. This level is consistent with aggregate production in the absence of various temporary frictions such as incomplete price adjustment in labor and goods markets. | natural rate of unemployment (NRU) |
| inflation that is very high or "out of control", a condition in which prices increase rapidly as a currency loses its value. Definitions used by the media vary from a cumulative inflation rate over three years approaching 100% to "inflation exceeding 50% a month | hyperinflation |
| cost of living adjustment; such as for a salary or Social Security benefits to adjust for inflation | COLA |
| a measure of inflation which excludes certain items that face volatile price movements, notably food and energy | Core inflation |
| a decrease in the general price level of goods and services | deflation |
| all the nonmilitary people who are officially employed or unemployed | labor force |
| stock of competences, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience | human capital |
| a fixed list of items used specifically to track the progress of inflation in an economy | market basket |
| A commodity, article, or service brought in from abroad for sale | import |
| Sales of goods or services to other countries | Export |
| prices that do not adjust or adjust only slowly toward a new equilibrium; labor contracts | sticky prices |
| A disturbance causing instability in an economy; often seen on supply side. Can be negative (oil embargo) or positive (oil discovery) | shock |
| laying out money or capital in an enterprise with the expectation of profit | investment |
| Delaying the spending of money | Saving |
| A current medium of exchange in the form of coins and banknotes; coins and banknotes collectively | money |
| a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by economists as part of a normal business cycle. | depression |
| The amount of output per unit of input (labor, equipment, and capital). | Productivity |
| Sustained increase in the prices of goods and services resulting from a high demand | demand-pull inflation |
| The amount by which a government, company, or individual's spending exceeds its income over a particular period of time (usually one year) | budget deficit |
| type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available. | cost-push inflation |
| The total financial obligations of a national government | National debt |
| A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters | recession |
| A predictable long-term pattern of alternating periods of economic growth (recovery) and decline (recession) | business cycle |
| the time period between jobs when a worker is searching for, or transitioning from one job to another | frictional unemployment |
| A factor of overall unemployment that relates to the cyclical trends in growth; unemployment caused by a recession in the business cycle | Cyclical unemployment |
| a form of unemployment resulting from a mismatch between demand in the labour market and the skills and locations of the workers | structural unemployment |
| the total demand for final goods and services in the economy (Y) at a given time and price level | aggregate demand |
| The total supply of goods and services produced within an economy at a given overall price level in a given time period. | aggregate supply |
| A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation | Stagflation |
| A situation in which all available labor resources are being used in the most economically efficient way | full employment |
| A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care | • Consumer Price Index (CPI) |
| The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling | inflation |
| occurs when a person who is actively searching for employment is unable to find work | unemployment |
| Employed only part-time when one needs and desires full-time employment | underemployment |
| used goods; not counted in GDP | secondhand sales |
| goods that are ultimately consumed rather than used in the production of another good | final goods |
| semi-finished products are goods used as inputs in the production of other goods, such as partly finished goods | Intermediate goods |
| a market in goods or services which operates outside the formal one(s) supported by established state power; "bootleg" economy; "black market" NOT counted in GDP | underground economy |
| An inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices | real GDP |
| A gross domestic product (GDP) figure that has not been adjusted for inflation | nominal GDP |
| a long-term expansion of the productive potential of the economy | Economic growth |
| Payment, usually of an amount fixed by contract, made by a tenant at specified intervals in return for the right to occupy or use the property of another (EOCT definition: payment for use of capital) | rent |
| a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money | interest |
| the market value of all officially recognized final goods and services produced within a country in a given period | Gross Domestic Product |
| the act of expending something, especially funds; disbursement; consumption | expenditure |
| the monetary payment received for goods or services, or from other sources, as rents or investments | income |
| the conceptual time period in which there are no fixed factors of production as to changing the output level by changing the capital stock or by entering or leaving an industry | long run |
| exports minus imports | net exports |
| Portion of an individual's income over which the recipient has complete discretion; can be used for consumption or saving | disposable income |
| a period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied | short run |
| When the government of a country pumps spending into an economy or When a central bank makes a short term loan to a member institution | injection |
| economic term, referring to an increase (decrease) in spending that accompanies an increase (decrease) in perceived wealth | wealth effect |
| General level of prices for goods and services in an economy. If all prices stay fixed for a while, the _____ _____ is unchanged, too. | price level |
| the non-consumption uses of income, including saving, taxes, and imports; A situation in which capital, or income, exits an economy, or system, rather than remains within it. | leakage |
| interest rates that have been adjusted for inflation | real interest rates |
| the removal of rules by some level of the government | deregulation |
| reduction in the exchange value of a country’s monetary unit in terms of gold, silver, or foreign monetary units. Employed to eliminate persistent balance-of-payments deficits. For example, a ______ of currency will decrease prices of the home country’s exports that are purchased in the import country’s currency. While making the exported goods cheaper for other countries, ____ also increases the prices of imports purchased in the home country | devaluation |
| English economist, journalist, and financier, best known for his economic theories on the causes of prolonged unemployment. His most important work, The General Theory of Employment, Interest and Money (1935–36), advocated a remedy for economic recession based on a government-sponsored policy of full employment. | John Maynard Keynes |
| a rule or rule-making; usually referred to a rule made by some level of government | regulation |
| Wages that respond to changes in supply and demand and lead to the market clearing wage being set | flexible wages |
| a tax on imported goods | Tariff |
| small changes in investment or government spending can create much larger changes in total output | Multiplier (spending) |
| the final purchase of goods and services by individuals; the largest component of GDP in USA (70%) | Consumption |
| An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability. | Keynesian economics |
| An economic idea that the people in the economy make choices based on their rational outlook, available information and past experiences. The theory suggests that the current expectations in the economy are equivalent to what the future state of the economy will be. This contrasts the idea that government policy influences the decisions of people in the economy. | Rational expectations theory |
| the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. | classical economics |
| the average frequency with which a unit of money is spent on new goods and services produced domestically in a specific period of time. _________ has to do with the amount of economic activity associated with a given money supply. | velocity of money |
| an economic theory which focuses on the macroeconomic effects of a nation’s money supply and its central banking institution. It focuses on the supply and demand for money as the primary means by which economic activity is regulated. Formulated by Milton Friedman, it argued that excessive expansion of the money supply will inherently lead to price inflation, and that monetary authorities should focus solely on maintaining price stability to maintain general economic health. | monetarism |
| The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government. | Laffer Curve |
| a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. According to the theory, consumers will then benefit from a greater supply of goods and services at lower prices. | supply-side economics |
| a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services | disinflation |
| a national social insurance program, administered by the U.S. federal government, that guarantees access to health insurance for Americans ages 65 and older | Medicare |
| A curve describing the relationship between the rate of inflation and the unemployment rate | Phillips Curve |
| The comprehensive federal program of benefits providing workers and their dependents with retirement income, disability income, and other payments. | Social Security |
| one of the indicators of the health of an economy. It is the amount of national debt of a country as a percentage of its Gross Domestic Product (GDP). | debt-to-GDP ratio |
| Bonds, notes, and other debt instruments sold by a government to finance its borrowings | treasury bonds |
| An economic theory explaining an increase in interest rates due to rising government borrowing in the money market. | Crowding-out effect |
| provides Congress with nonpartisan analyses for economic and budget decisions and with estimates required for the Congressional budget process | Congressional Budget Office |
| a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services | sales tax |
| A system in which all levels of income are taxed at the same rate. also called flat tax | proportional tax |
| A tax that takes a larger percentage from low-income people than from high-income people | Regressive tax |
| A tax system in which those who earn higher incomes pay a higher percentage of their income than those with lower incomes | progressive tax |
| a government policy of reducing spending and raising taxes. Can be used to fight inflation or reduce national debt. | contractionary fiscal policy |
| when annual government tax revenue exceeds annual government spending | budget surplus |
| the total obligations owed by a government, adding up all past deficits | National debt |
| involves government spending exceeding tax revenue, and is usually undertaken during recessions | expansionary fiscal policy |
| Government economic policy that involves taxing and spending. | Fiscal policy |
| the theory that money supply has a direct, proportional relationship with the price level | Quantity theory of money |
| a hypothetical market that brings savers and borrowers together, also bringing together the money available in commercial banks and lending institutions available for firms and households to finance expenditures, either investments or consumption. Savers supply the loanable funds; for instance, buying bonds will transfer their money to the institution issuing the bond, which can be a firm or government. In return, borrowers demand loanable funds; when an institution sells a bond, it is demanding loanable funds | loanable funds market |
| reducing risk by investing in a variety of assets | diversification |
| a type of professionally-managed collective investment that pools money from many investors to purchase securities | mutual fund |
| payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders | dividends |
| a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor | capital gains |
| A loan to a corporation or a government. | bond |
| A share of ownership (equity) in a corporation. | stock |
| a term applied in many countries to a reference interest rate used by banks. The term originally indicated the rate of interest at which banks lent to favored customers, i.e., those with high credibility | Prime interest rate |
| implemented by reducing the size of the monetary base. This directly reduces the total amount of money circulating in the economy. | contractionary monetary policy |
| implemented by increasing the money supply relative to the quantity demanded - it will cause the equilibrium rate of interest to fall, all other things being equal. Used by the Fed to fight recessions. May include buying government securities to lower the Fed Funds rate, lowering the discount rate, or lowering the reserve requirement. | Expansionary monetary policy |
| an interest rate a central bank charges depository institutions that borrow reserves from it, for example for the use of the Federal Reserve's discount window. | discount rate |
| an activity by a central bank to buy or sell government bonds on the open market. A central bank uses them as the primary means of implementing monetary policy. The usual aim of open market operations is to control the short term interest rate and the supply of base money in an economy, and thus indirectly control the total money supply. | open-market operations |
| the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. In the United States, this is conducted by the FOMC. | monetary policy |
| one of various closely related ratios of commercial bank money to central bank money under a fractional-reserve banking system. Most often, it measures the maximum amount of commercial bank money that can be created by a given unit of central bank money. That is, in a fractional-reserve banking system, the total amount of loans that commercial banks are allowed to extend (the commercial bank money that they can legally create) is a multiple of reserves; this multiple is the reciprocal of the reserve ratio, and it is an economic multiplier. | Money multiplier |
| the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend those balances to institutions in need of larger balances. This is determined by the FOMC. | Federal funds rate |
| a type of debt. Like all debt instruments, a ____ entails the redistribution of financial assets over time, between the lender and the borrower. | loan |
| an order for transfer of money | check |
| The percentage of deposits a bank must hold- sometimes used as a tool in monetary policy, influencing the country's borrowing and interest rates by changing the amount of funds available for banks to make loans with | reserve ratio |
| the minimum reserves each commercial bank must hold (rather than lend out) of customer deposits and notes. It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank. | Required reserves |
| debts and obligations | liabilities |
| Economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value. | asset |
| a summary of the financial balances of a sole proprietorship, a business partnership, a corporation or other business organization, such as an LLC or an LLP. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year | balance sheet |
| a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction (called the reserve ratio) of the quantity of deposits as reserves. | fractional reserve banking system |
| a committee within the Federal Reserve System, is charged under United States law with overseeing the nation's open market operations (i.e., the Fed's buying and selling of United States Treasury securities).[1] It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply | Federal Open Market Committee |
| the main governing body of the Federal Reserve System. It is charged with overseeing the 12 District Reserve Banks and with helping implement national monetary policy. Governors are appointed by the President of the United States and confirmed by the Senate for staggered, 14-year terms | Board of Governors |
| the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act. It is the agency of the US government that conducts monetary policy. | Federal Reserve System |
| A savings account that offers the competitive rate of interest (real rate) in exchange for larger-than-normal deposits. | Money market account |
| Thrifts are savings and loans associations. Thrifts also refer to credit unions and mutual savings banks that provide a variety saving and loans services. | thrift |
| A financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit | commercial bank |
| A category within the money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds. | M2 |
| A category of the money supply that includes all physical money such as coins and currency; it also includes demand deposits, which are checking accounts, and Negotiable Order of Withdrawal (NOW) Accounts--- the most liquid form of money | M1 |
| The ability of an asset to be converted into cash quickly and without any price discount | Liquidity |
| a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss | insurance |
| refers to the rate of interest after adjustment for inflation | Real interest rate |
| refers to the rate of interest before adjustment for inflation | nominal interest rate |
| refers to the final payment date of a loan or other financial instrument | maturity |
| interest is calculated only on the principal amount, or on that portion of the principal amount that remains unpaid | simple interest |
| interest that is paid on both the principal and also on any interest from past years. | compound interest |
| fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds | interest |
| When the value of one currency goes down relative to the value of another. | currency depreciation |
| When the value of one currency (ex. dollar) goes up relative to the value of another (ex. euro). | Currency appreciation |
| currency of Japan | yen |
| Currency of the European Union member states | Euro |
| a currency system in which governments try to keep the value of their currencies constant against one another | fixed exchange rate |
| Short for foreign exchange; trading one currency for another | Forex |
| a financial action that does not promise safety of capital investment along with the return on the principal sum | speculation |
| a monetary system that allows the exchange rate to be determined by supply and demand. | Flexible-exchange-rate system |
| a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities | official reserves |
| one of the two primary components of the balance of payments, the other being capital account. It is the sum of the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers. | current account |
| an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers | balance of payments |
| the difference between the monetary value of exports and imports of output in an economy over a certain period | Balance of trade |
| an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994 | NAFTA |
| an economic and political union or confederation of 27 member states which are located primarily in Europe | European Union |
| An assistance paid to a business or economic sector. Can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. | Subsidy |
| includes import quotas, special licenses, unreasonable standards for the quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of state trading, export subsidies, countervailing duties, technical barriers to trade, sanitary and phyto-sanitary measures, rules of origin, etc. | non-tariff barriers to trade |
| a limit on the quantity of a good that can be produced abroad and sold domestically.[1] It is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time | import quota |
| A tariff set at a rate high enough to discourage consumers from purchasing imports. Typically the tariff rate would raise the price of an imported good above all domestically produced goods. | protective tariff |
| A tariff set at a level to generate tax dollars for a government but not high enough to discourage all purchase of an import. | Revenue tariff |
| A tax on imported goods. | tariff |
| the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to proponents) "fair competition" between imports and goods and services produced domestically. | protectionism |
| a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports). According to the law of comparative advantage the policy permits trading partners mutual gains from trade of goods and services | free trade |
| the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies | comparative advantage |
| the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources | absolute advantage |
| country's exports exceeds its imports | trade surplus |
| An economic measure of a negative balance of trade in which a country's imports exceeds its exports | Trade deficit |
