A
ability-to-pay-principle – the idea that it is fair for people to pay taxes based on their capability to handle the financial burden.
absolute advantage – a theory that suggests two trading partners can benefit from trade if each partner specializes in the production of the good or service it can produce with fewer resources than its partner and trades it for the other product. The theory was popularized by Adam Smith in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, which was published in 1776.
abundant – plentiful; widely available.
accountant – someone who prepares and inspects the tax reports and other financial records of individuals or businesses.
accounting – the preparation and inspection of financial reports.
aggregate demand (AD) – overall spending on newly produced goods and services in the economy. Aggregate demand is composed of consumption (C), investment (I), government purchases (G), and net exports (X-M).
aggressive growth stock – a share of ownership in a relatively small corporation without a long history of profitability.
allocation – distribution.
asset – a financial claim or piece of property that is a store of value.
autarky – the absence of trade.
average tax rate – the total taxes paid divided by total income.
B
baby boom generation – the demographic bulge in the population caused by an increase in the number of births between 1946 and 1964.
bank – a financial institution that accepts deposits and creates loans. See commercial bank.
bank accounts – deposits in commercial banks or similar institutions, such as credit unions.
bank, commercial – a financial institution that attempts to make a profit by paying depositors little or no interest and lending a portion of the deposits to borrowers at moderate to high rates of interest.
Bank of Canada – the central bank of Canada. It oversees the banking system and regulates the quantity of money in the Canadian economy.
http://www.bankofcanada.ca/
Bank of England – the central bank of the United Kingdom. It oversees the banking system and regulates the quantity of money in the British economy.
http://www.bankofengland.co.uk/
Bank of Japan – the central bank of Japan. It oversees the banking system and regulates the quantity of money in the Japanese economy.
http://www.boj.or.jp/en/
Bank of the United States – the first central bank of the United States. It was created in 1791 and abolished in 1811.
bankruptcy risk – the relative likelihood that a firm or institution goes bankrupt and does not pay the rate of return it promised investors.
barter – the exchange of a good or service for another good or service.
base year – the year that is used as the comparison year when calculating an index. The base year is the year from which prices are used to calculate the value of output.
basket of goods – a collection of products used to calculate a price index.
benefits principle – the idea that it is fair for people to pay taxes based on the benefits they receive from the provided government service.
black market – an illegal market.
blue chip stock – a share of ownership in a large well-established corporation with a record of consistent earnings over time.
blue-collar worker – an adult who performs work that involves manual labor, is paid hourly wages, and dresses in clothes that may become heavily soiled.
Board of Governors – the seven-member committee that sets policy for the Federal Reserve System. Each governor is appointed to a 14-year term by the President of the United with confirmation by the U.S. Senate.
http://www.federalreserve.gov/
bond – a financial instrument that represents a loan from the purchaser of the bond to the issuer of the bond.
bond, corporate – a financial instrument that represents a loan from the purchaser of the bond to the corporation that issued the bond. Corporate bonds are issued by corporations that desire to borrow money directly from investors rather than through a financial intermediary, such as a commercial bank.
bond, government – a financial instrument that represents a loan from the purchaser of the bond to the government that issued the bond.
bond, junk – a corporate bond issued by a company with high bankruptcy risk.
bond, municipal – a financial instrument that represents a loan from the purchaser of the bond to the state or local government that issued the bond. Municipal bonds frequently provide investors with tax breaks.
budget – an itemized plan of revenues and expenditures for a given period of time.
budget balance – the difference between revenues and expenditures.
budget deficit – the amount by which expenditures exceed revenues. The federal government’s budget deficit is the amount by which government spending exceeds its revenues. These deficits are financed by borrowing money, which becomes a debt obligation for future generations.
budget surplus – the amount by which revenues exceed expenditures. The federal government’s budget surplus is the amount by which government revenues exceeds its spending.
Bureau of Labor Statistics (BLS) – the federal government agency that collects, analyzes and publishes U.S. macroeconomic and labor market statistical data.
http://www.bls.gov/
Bush, George Herbert Walker – the 41st President of the United States who served from 1989 to 1993. He is the father of George Walker Bush.
Bush, George Walker – the 43rd President of the United States who served from 2001 to 2009. He is the son of George Herbert Walker Bush.
business – a company that produces goods or services, usually in an effort to make a profit.
business administration – the study of general business principles and practices.
business cycle – the natural fluctuations in the economy.
business firm – a company that produces goods or services, usually in an effort to make a profit.
C
capital – anything man-made that increases productivity. Capital may also refer to physical capital, human capital, technology, or financial capital, depending on the context.
capital, financial – the money or other financial assets used to purchase physical capital, human capital, or technology.
capital gains – the increase in the value of an asset, such as stock, over time.
capital, human – the education, skills, and training that make workers more productive.
capital, physical – anything tangible and man-made that makes workers more productive.
capitalist – a financier who invests in a business by providing it with significant money or other financial assets.
Carter, James (Jimmy) Earl, Jr. – the 39th President of the United States who served from 1977 to 1981.
central bank – an institution that oversees the banking system and regulates the quantity of money in an economy.
certificates of deposit (CDs) – financial instruments that promise to pay the purchaser a specified fixed rate of interest over a designated period of time if the purchaser promises not to withdraw the funds.
Chairman of the Board of Governors of the Federal Reserve System – the individual who oversees the operation of the Fed and thus has primary responsibility for the conduct of monetary policy in the United States.
http://www.federalreserve.gov/
check – a draft that serves as a written order for a bank to pay a specified amount from funds deposited in an account at the bank.
checkable deposit – money deposited in a checking account at a commercial bank or similar financial institution.
checking account – a bank account that allows checks to be written against the amount of money deposited in the account.
circular-flow diagram – a visual model of the economy that illustrates how households and businesses interact through markets for products and markets for resources.
Classical economics – the system of economic thought, predominant prior to the Great Depression, that suggests the economy will correct any problems, such as unemployment or inflation, without any government intervention.
Clinton, William Jefferson (Bill) – the 42nd President of the United States who served from 1993 to 2001.
coins – hard materials, typically metals, with markings that designate their denominations for use as money.
collective bargaining – the process by which unions and business firms agree on the terms of employment.
command – an economic system in which one person or a small group of people allocates economic resources for a larger group of people.
commercial bank – a financial institution, chartered by the federal or state government, that generates income primarily by accepting deposits from the general public and using these funds to create loans. Commercial banks pay depositors little or no interest and lend a portion of the deposits to borrowers at moderate to high rates of interest.
commodity money – money that has intrinsic value. It can be used for something other than money. Gold and silver coins are examples of commodity money.
common resource – a product that is rival, but not excludable. One person’s use of a common resource diminishes the amount available for others to use and it is difficult to prevent people from using it. Fish in the Chesapeake Bay are an example of a common resource.
comparative advantage – a theory that suggests two trading partners can benefit from trade if each trading partner produces and trades away the product or service it can produce at a smaller opportunity cost than its trading partner. The theory was popularized by David Ricardo in his 1817 book, Principles of Political Economy and Taxation.
comparative economics – the field of study that examines the history, theory, and development of various economic systems and structures.
compassionate conservatism – the phrase President George W. Bush used to describe his belief in an active role for the government in helping citizens in need while also reducing the tax revenues to fund government programs. This philosophy led to the largest federal budget deficits in U.S. history.
complementary goods – products that are usually consumed together.
compound interest – a financial return that is earned on a previously earned financial return.
Comptroller of the Currency – the office of the U.S. Department of the Treasury that charters, regulates, and oversees all U.S. national banks and supervises American branches of foreign banks.
http://www.occ.treas.gov/
conservatism, traditional – a political philosophy based on the belief that there are limited opportunities for the government to correct market failures or the belief that the government is ineffective at correcting market failures. Traditional conservatives usually favor a relatively small role for government in regulating the economy. For example, conservatives usually think it is not appropriate for the government to take actions to reduce pollution, poverty, and market power.
constant opportunity costs – the production condition that occurs when the quantity of one product that must be foregone to obtain a unit of another product is the same, regardless of how much has already been produced.
Consumer Price Index (CPI) – a measure of the price level based on a fixed basket of the goods and services purchased by a typical urban family. It is used to calculate the inflation rate.
consumption (C) – the purchase of newly produced final goods and services by households.
consumption tax – a charge (usually of money) imposed by the government on the purchase or use of a product.
contractionary fiscal policy – attempts to slow the economy by decreasing overall spending on newly produced goods and services through (1) decreased government purchases, or (2) increased taxes to discourage consumption and investment spending. Contractionary fiscal policy can be used to fight inflation.
contractionary macroeconomic policy – the use of fiscal or monetary policies to slow the economy by decreasing overall spending on newly produced goods and services. Contractionary macroeconomic policy is usually appropriate for fighting inflation.
contractionary monetary policy – attempts by the Federal Reserve System to slow the economy by decreasing the money supply and increasing interest rates in an effort to decrease overall spending on newly produced goods and services. Contractionary monetary policies discourage the creation of loans by commercial banks and thus decrease the money supply.
corporate bond – a financial instrument that represents a loan from the purchaser of the bond to the corporation that issued the bond. Corporate bonds are issued by corporations that desire to borrow money directly from investors rather than through a financial intermediary, such as a commercial bank.
corporation – a business firm that has been chartered by a state government as a legal entity. Corporations issues shares of stock that represent pieces of ownership of the business.
cost-benefit analysis – a system for assessing the value of a project by comparing its costs and benefits.
cost-of-living adjustments (COLAs) – automatic increases in Social Security benefits to compensate for the loss in purchasing power caused by inflation as measured by the Consumer Price Index (CPI).
cost-push inflation – an increase in the price level caused by higher costs of production.
credit union – an institution that provides financial services similar to those offered by commercial banks, such as accepting deposits and making loans, but does not attempt to earn a profit. Credit unions are not-for-profit organizations that provide banking services to members.
currency – paper bills and coins.
Current Population Survey (CPS) – a telephone survey of approximately 60,000 randomly selected adults that is used to calculate several commonly reported measures of labor market conditions.
cyclical unemployment – the deviation of unemployment from its natural rate.
Cyclical unemployment is also called Keynesian unemployment.
D
dartboard fund – a study by Forbes Magazine that picked 28 stocks in the late 1960s by throwing darts at a newspaper listing of stocks, invested $1000 in each stock, and saw them increase in value to over $130,000 by the mid 1980s. This increase was greater than the increase in the value of a majority of mutual funds during the same period of time.
debt – something owed to someone else.
deficit, budget – the amount by which expenditures exceed revenues. The federal government’s budget deficit is the amount by which government spending exceeds its revenues. These deficits are financed by borrowing money, which becomes a debt obligation for future generations.
deflation – a general decrease in the price level.
demand – the relationship between various prices of a product and the corresponding quantity that consumers are willing and able to buy at each of those prices.
demand curve – a graphical representation of demand.
demand deposit – the balance in a checking account at a commercial bank.
demand, law of – states that, other things equal, the quantity demanded of a product decreases when the price of the product increases.
demand-pull inflation – an increase in the price level caused by excess demand for newly produced goods and services. Society’s demand for new products exceeds its ability to produce them.
demanded, quantity – the amount that consumers are willing and able to buy at a particular price.
demand schedule – a tabular representation of demand.
discount – a discount loan.
discount loan – an overnight loan from a regional Federal Reserve Bank to a commercial bank to allow the commercial bank to meet the reserve requirement.
discount rate – the interest rate charged on loans from the regional Federal Reserve Banks to commercial banks.
discouraged worker – an individual who would like to work but has stopped looking for a job.
disinflation – the condition that occurs when the inflation rate decreases, but remains positive.
disposable income – the amount of income a person has after the payment of taxes.
diversification – occurs when investors own small pieces of many different financial instruments rather than have all of their investments in one or a few such instruments.
dividend – the portion of a corporation’s profit that is distributed to each stockholder. Dividends are typically paid every three months.
double coincidence of wants – the need for a trader to find a partner who has a product he wants and who wants what he is offering to trade.
Dow Jones Industrial Average – an index of 30 blue-chip stocks that are representative of all large well-established American corporations.
dowry – a marriage gift of money or property from the family of a bride to the bridegroom. A dowry is an example of the allocation of resources by tradition.
durable good – a product that is used over a long period of time, such as a refrigerator, a washing machine, or a car.
E
economic efficiency – the degree to which the largest quantity of output is obtained from a given set of resources.
economic growth – the amount by which a country’s production of goods and services changes over time. Economic growth is a measure of a country’s standard of living. Since people tend to be paid based on their productivity, the value of a country’s output is also the value of the country’s income. Thus, economic growth also measures how a country’s income changes over time.
economic resource – something people use to attempt to satisfy their needs and wants. Economic resources can be divided into three categories: labor, capital, and natural resources.
economic system – a method of resource allocation. Economic systems can be divided into three categories: tradition, command, and markets.
economic system, command – the method of resource allocation that occurs when one person or a small group of people allocates economic resources for a larger group of people.
economic system, market – the method of resource allocation that occurs when economic resources are allocated through the separate decisions of households and business firms as they interact in markets for products and resources.
economic system, tradition – the method of resource allocation based on customs and traditions.
economics – the study of how scarce resources are allocated to satisfy seemingly unlimited needs and wants.
economizing problem – the dilemma created because people’s needs and wants are seemingly unlimited, yet the resources they can use to satisfy those needs and wants are limited.
efficiency – see economic efficiency or tax efficiency.
efficiency, economic – the degree to which the largest quantity of output is obtained from a given set of resources.
efficiency, tax – the degree to which the tax system has a small administrative burden and does not alter people’s behavior.
efficiency wages – market wages that are above the equilibrium wage in an attempt by a business firm to increase worker productivity.
employed – adults who spent most of the previous week working at a paid job.
employment – the condition of spending most of the previous week working at a paid job.
entitlement program – a government program that provides benefits to an indefinite number of recipients who by law are entitled to receive benefits if they meet the eligibility requirements.
entrepreneur – someone who invents a new product that satisfies a want or need of society, improves an existing product, or provides a product in a better or more efficient way.
entrepreneurship – the invention of new products, the improvement of existing products, or the delivery of products in better or more efficient ways.
equilibrium – the price and quantity at which the quantity supplied equals the quantity demanded. Equilibrium is illustrated by the point where the supply and demand curves intersect.
equilibrium price – the price at which the quantity supplied equals the quantity demanded. It is represented graphically by the vertical distance between the horizontal axis and the supply and demand curves at the equilibrium quantity.
equilibrium quantity – the quantity supplied and demanded at the equilibrium price. It is represented graphically by the horizontal distance between the vertical axis and the supply and demand curves at the equilibrium price.
equilibrium wage rate – the price of labor at which the quantity of labor supplied equals the quantity of labor demanded.
equities – stocks; shares of ownership in a corporation.
equity – the condition that occurs if a society distributes its economic resources fairly among its people.
equity, horizontal – the idea that taxpayers with similar abilities to pay taxes should pay the same amount.
equity of a tax system – the degree to which the tax burden is distributed fairly among the population.
equity, vertical – the idea that taxpayers with a greater ability to pay taxes should pay larger amounts.
European Union (EU) – the integration of twenty-seven democratic European countries for the pursuit of peace and prosperity. The members of the EU are Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom of Great Britain and Northern Ireland.
http://europa.eu.int/
excess reserves – the vault cash and deposits at a regional Federal Reserve Bank that commercial banks hold is addition to those held to meet the Federal Reserve System’s requirement that for every dollar of deposits at a bank, a certain fraction must be kept as reserves.
excise tax – a government charge levied on a particular product.
excludable – the characteristic of a product whereby people can be prevented from consuming it.
expansionary fiscal policy – attempts to stimulate the economy by increasing overall spending on newly produced goods and services through (1) increased government purchases (G), or (2) decreased taxes to encourage more consumption (C) and investment (I) spending. Expansionary fiscal policy can be used to fight unemployment. It also promotes economic growth if it generates investment in physical capital, human capital, and technology, which tend to increase productivity.
expansionary macroeconomic policy – the use of fiscal or monetary policies to stimulate the economy by increasing overall spending on newly produced goods and services. Expansionary macroeconomic policy is usually appropriate for fighting unemployment.
expansionary monetary policy – attempts by the Federal Reserve System to stimulate the economy by increasing the money supply and decreasing interest rates in an effort to increase overall spending on newly produced goods and services. Expansionary monetary policies encourage the creation of loans by commercial banks and thus increase the money supply.
expenses – the total costs of the production of goods or services by a business.
exports (X) – goods and services sold by domestic producers to foreign purchasers.
F
farm price support – a price floor that specifies the minimum price to be charged for a designated agricultural product.
FDIC – see Federal Deposit Insurance Corporation.
Fed – the nickname of the Federal Reserve System, the central bank of the United States.
federal budget balance – the difference between federal government revenues and expenditures.
Federal Deposit Insurance Corporation (FDIC) – the federal government agency that maintains confidence in the U.S. banking system by insuring deposits in commercial banks and thrift institutions for up to $100,000.
http://www.fdic.gov/
federal funds – reserves that are loaned overnight from a commercial bank with excess reserves to a commercial bank with a shortage of reserves.
federal funds rate – the interest rate charged on loans from commercial banks to other commercial banks. The federal funds rate is one half of a percentage point less than the discount rate.
Federal Insurance Contributions Act (FICA) – the 1939 law that authorized the Internal Revenue Service to collect additional taxes from the paychecks of workers to support the Social Security and Medicare programs.
Federal Reserve System – the U.S. central bank, a quasi-government agency that oversees the banking system and conducts monetary policy by influencing the money supply and interest rates and thus affects overall spending in the economy.
http://www.federalreserve.gov/
Federal Open Market Committee (FOMC) – the twelve-member Federal Reserve System committee that conducts open market operations to alter the money supply and influence the economy.
http://www.federalreserve.gov/FOMC/
fiat lux – the motto of Jacksonville University. It is Latin for “let there be light” or “let the light shine.”
fiat money – money that does not have intrinsic value.
FICA – See Federal Insurance Contributions Act.
final products – goods and services that are not used to make other products.
finance – the management of money, credit, and other financial assets.
financial capital – the money or other financial assets used to purchase physical capital, human capital, or technology.
financier – someone who engages in large-scale financial affairs.
fiscal – of or relating to finance or to government revenues, expenditures, and debt.
fiscal policy – taxing and spending by the government.
fiscal policy, contractionary – attempts to slow the economy by decreasing overall spending on newly produced goods and services through (1) decreased government purchases, or (2) increased taxes to discourage consumption and investment spending. Contractionary fiscal policy can be used to fight inflation.
fiscal policy, expansionary – attempts to stimulate the economy by increasing overall spending on newly produced goods and services through (1) increased government purchases (G), or (2) decreased taxes to encourage more consumption (C) and investment (I) spending. Expansionary fiscal policy can be used to fight unemployment. It also promotes economic growth if it generates investment in physical capital, human capital, and technology, which tend to increase productivity.
fiscal policy’s political bias – the eagerness of politicians to conduct expansionary policy by cutting taxes and increasing government purchases and reluctance to conduct contractionary policy, which requires tax increases or reductions in government spending that are politically unpopular.
flat tax – a type of income tax in which every taxpayer is subject to the same marginal tax rate.
FOMC – see Federal Open Market Committee.
food stamp program – a government social program that gives poor families vouchers that they can use to buy food.
Forbes – a commercial magazine devoted to business and personal finance.
http://www.forbes.com/
Forbes, Malcolm Stevenson “Steve”, Jr. – the editor-in-chief of Forbes magazine and U.S. Presidential candidate in the Republican primaries of 1996 and 2000. His candidacies were based primarily on his advocacy of a flat income tax, social conservatism, and supply-side economics.
Ford, Gerald R. – the 38th President of the United States who served from 1974 to 1977.
Fortune 500 – an annual list of the 500 largest U.S. corporations. It is compiled and published by Fortune magazine.
four Ps of marketing – the marketing mix that describes the marketing process: product (conception), price, promotion, and place (distribution).
fractional-reserve banking – a banking system in which banks hold only a fraction of deposits as reserves.
frictional unemployment – unemployment that occurs because it takes time for workers to search for the jobs that best suit their skills and preferences.
future value of an investment – the value a financial asset will have at a particular point in the future. If interest is compounded annually, it can be calculated with the following equation: FV = PV (1 + i)n where FV = future value of the investment; PV = present value of the investment; i = interest rate (i.e., rate of return); and n = number of years.
G
GDP – see gross domestic product.
GDP deflator – a measure of the price level based on all goods and services produced in a country in a particular year. Unlike the CPI and PPI, the GDP deflator is not based on a fixed basket of goods.
GDP per capita – the nominal value of a country’s output per person. It is calculated by dividing nominal GDP by the country’s population. It is a measure of the average income of a person in the country.
GDP, per capita real – a measure of the real value of a country’s output per person. It is calculated by dividing real GDP by the country’s population. It is also a measure of the real value of a country’s income per person.
GDP, real – the value of the total final output of a country's economy without the influence of inflation. Real GDP is the output of a country’s final goods and services in constant dollars.
GDP, real per capita – a measure of the real value of a country’s output per person. It is calculated by dividing real GDP by the country’s population. It is also a measure of the real value of a country’s income per person.
GNP – see gross national product.
The General Theory of Employment, Interest, and Money – the most famous book by British economist John Maynard Keynes. It was published in 1936 and suggests the government should play an active role in managing the economy.
good – a tangible commodity or piece of merchandise that is produced for sale.
good, durable – a product that is used over a long period of time, such as a refrigerator, a washing machine, or a car.
good, non-durable – a product that is consumed over a short period of time, such as food or clothing.
government – a public institution that provides services that are primarily financed through taxation. Most government services are designed to correct perceived failures of the market system to provide socially desirable outcomes.
government bond – a financial instrument that represents a loan from the purchaser of the bond to the government that issued the bond.
government purchases (G) – government payments made in exchange for currently produced goods and services. They include the wages and salaries of current government workers and the products, such as vehicles, office supplies, and weapons, used by the government in its provision of public services. Government purchases do not include transfer payments.
government security – a debt instrument (such as a bond) issued by the U.S. Treasury to finance the budget deficits of the federal government.
Great Depression – a period of severe global economic hardship during the 1930s.
gross domestic product (GDP) – the total value of all final goods and services produced in a country during a given period (usually a year).
gross national product (GNP) – the total value of all final goods and services produced in a given period of time (usually a year) by businesses owned by citizens of a country.
H
horizontal equity – the principle that taxpayers with similar abilities to pay taxes should pay the same amount.
household – a social unit comprised of those living together in the same dwelling.
human capital – the education, skills, and training that make workers more productive.
hyperinflation – extreme inflation in which the inflation rate exceeds 50% per month.
I
imports (M) – goods and services sold by foreign producers to domestic purchasers.
incentive – something that induces a particular behavior or action.
income effect – the increase in a consumer’s purchasing power when the price of a product decreases.
income security – the category of U.S. federal government spending comprised of transfer payments to poor individuals and families.
increasing opportunity costs – the production condition that occurs when the quantity of one product that must be foregone to obtain a unit of another product increases as more is produced.
indexation – the use of a law or contract to automatically correct a dollar amount for the effects of inflation.
inferior good – a product for which an increase in income decreases demand.
inflation – a general increase in the level of most prices in an economy.
inflation rate – a measurement of how quickly prices are rising in an economy. It is typically reported as the annual percentage increase in the price level.
interest – the compensation from the borrower or receiver of funds to the lender or depositor of the funds.
interest rate – the rate of return earned on an investment. It represents compensation from the borrower or receiver of funds to the lender or depositor of the funds.
interest rate risk – the loss of a higher potential rate of return or the loss of the value of a financial asset if interest rates increase in the future.
intermediate product – a good or service that is an input in the production of another good or service.
Internal Revenue Service (IRS) – the U.S. federal government agency that is responsible for the collection of income taxes. It is part of the U.S. Department of the Treasury.
http://www.irs.gov/
investment (I) – the purchase of capital equipment, inventories, and structures. Most investment is done by businesses. The purchase of a home by a household, however, is also considered to be investment.
J
job search – the process by which workers find appropriate jobs given their skills and preferences.
Johnson, Lyndon B. – the 36th President of the United States who served from 1963 to 1969.
junk bonds – corporate bonds issued by companies with high bankruptcy risk.
K
Kennedy, John F. – the 35th President of the United States who served from 1961 to 1963.
Keynes, John Maynard – a British economist (1883-1946) who popularized the idea that the government should play an active role in managing the economy.
Keynesian unemployment – the deviation of unemployment from its natural rate.
It is also called cyclical unemployment.
L
labor – human effort, both physical and mental. Examples of labor are teachers, bankers, construction workers, steelworkers, plumbers, entrepreneurs, and managers.
labor force – the total number of adult workers in an economy, including both the employed and the unemployed.
labor force participation rate – the percentage of the adult population in the labor force.
labor market – the resource market in which households provide their human effort for the production of goods or services in exchange for compensation by a business.
labor union – a worker association that bargains with an employer over wages, salaries, and working conditions.
land – the economic nickname for all natural resources; anything provided by nature.
law of demand – states that, other things equal, the quantity demanded of a product decreases when the price of the product increases.
law of supply – states that, other things equal, the quantity supplied of a product increases when the price of the product increases.
liability – a debt. It is something that is owned by or owed to someone else.
liberalism, traditional – a political philosophy based on the belief that there are many opportunities for the government to correct market failures and thus there is a relatively large role for the government to regulate the economy. For example, liberals usually think it is appropriate for the government to take actions to reduce pollution, poverty, and market power. Traditional liberalism is also called social liberalism.
liquidity – the relative ease and speed with which an asset can be converted into money.
lump-sum tax – a tax that is the same monetary amount for every taxpayer.
M
M1 – the narrowest definition of the U.S. money supply. It includes currency, travelers’ checks, demand deposits and other checkable deposits.
M2 – a definition of the U.S. money supply that includes currency, travelers’ checks, demand deposits and other checkable deposits, savings accounts, money market accounts, money market mutual funds, and small denomination certificates of deposit
M3 – a definition of the U.S. money supply that includes currency, travelers’ checks, demand deposits and other checkable deposits, savings accounts, money market accounts, money market mutual funds, small denomination certificates of deposit, and large denomination certificates of deposit. The Board of Governors of the Federal Reserve System stopped publishing the M3 monetary aggregate and its components on March 23, 2006.
macroeconomic policy – the government’s use of monetary and fiscal policies to influence the overall economy by affecting overall spending on newly produced goods and services.
macroeconomic policy, contractionary – the use of fiscal or monetary policies to slow the economy by decreasing overall spending on newly produced goods and services. Contractionary macroeconomic policy is usually appropriate for fighting inflation.
macroeconomic policy, expansionary – the use of fiscal or monetary policies to stimulate the economy by increasing overall spending on newly produced goods and services. Expansionary macroeconomic policy is usually appropriate for fighting unemployment.
macroeconomic policy goals – the objectives the government tries to achieve when it influences the overall economy. The three primary macroeconomic policy goals are economic growth, low unemployment, and low inflation.
macroeconomic policy tools – the monetary and fiscal policies used by the government to influence the economy by affecting overall spending on newly produced goods and services.
macroeconomics – the field of economics that studies issues of resource allocation that affect the entire economy, such as economic growth, unemployment, and inflation.
management – the allocation of economic resources.
manager – someone who allocates economic resources. Successful managers are efficient in their use of labor, capital, and natural resources.
Mankiw, Gregory – the economist who served as Chairman of President George W. Bush’s Council of Economic Advisers from May 2003 to February 2005.
marginal tax rate – the tax paid on an additional dollar of income.
market – an economic system that uses prices to allocate economic resources through the separate decisions of households and business.
market failure – the situation in which the marketplace fails to provide a socially desirable outcome.
market power – the situation in which one firm or a group of firms has enough influence over a market that prices can be increased above the competitive level. Market structures that exhibit market power are monopoly and oligopoly.
market price – the price actually charged in a market. It may or may not be the same as the equilibrium price.
market risk – the relative likelihood that an investment will lose value because of fluctuations in the economy.
market wage rate – the price paid for a worker’s labor. It may or may not be the same as the equilibrium wage rate.
marketer – someone who promotes the purchase or sale of a product.
marketing – the process of informing society about products in an attempt to convince potential consumers to purchase them.
marketing, four Ps of – the marketing mix that describes the marketing process: product (conception), price, promotion, and place (distribution).
marketing mix – the four Ps that describes the marketing process: product (conception), price, promotion, and place (distribution).
Medicaid – the federal government entitlement program that pays medical bills for low-income Americans.
Medicare – the federal government entitlement program that pays medical bills for elderly Americans.
medium of exchange – something, such as money, that facilitates trade.
menu costs of inflation – the costs associated with changing the prices of the products sold by a business.
mercantilism – a philosophy that suggests a country can benefit from trade only at the expense of its trading partners. Mercantilism views trade as a zero-sum game.
microeconomics – the field of economics that deals with issues that affect individual markets and business firms, such as market structure, profit maximization, and consumer theory.
minimum wage – a price floor that specifies the lowest price that employers can legally pay for labor.
minimum wage law – see minimum wage.
monetary base – the amount of currency in circulation or held as reserves.
monetary policy – the Federal Reserve System's management of the nation’s money supply, interest rates, and banking system to influence the economy by affecting overall spending on newly produced goods and services. Monetary policy is the most commonly used tool of macroeconomic policy.
monetary policy, contractionary – attempts by the Federal Reserve System to slow the economy by decreasing the money supply and increasing interest rates in an effort to decrease overall spending on newly produced goods and services. Contractionary monetary policies discourage the creation of loans by commercial banks and thus decrease the money supply.
monetary policy, expansionary – attempts by the Federal Reserve System to stimulate the economy by increasing the money supply and decreasing interest rates in an effort to increase overall spending on newly produced goods and services. Expansionary monetary policies encourage the creation of loans by commercial banks and thus increase the money supply.
money – anything that is generally accepted to serve as a medium of exchange, store of value, and unit of account.
money GDP – the total value of all final goods and services produced in a country in a period of time (usually a year). It is another name for gross domestic product (GDP).
money market accounts – money market funds offered by commercial banks and similar financial institutions.
money market funds – mutual funds that invest in short-term loans or other financial instruments that are similar to certificates of deposit.
money market mutual funds – money market funds.
money multiplier – the amount of money the banking system generates with each dollar of reserves. The money multiplier is the reciprocal of the reserve ratio.
money supply – the amount of money in the economy. The money supply can be defined in various ways, such as M1, M2, and M3.
monopoly – a market structure in which there is only one seller of the product and consequently the firm determines market price.
municipal bond – a financial instrument that represents a loan from the purchaser of the bond to the state or local government that issued the bond. Municipal bonds frequently provide investors with tax breaks.
mutual fund – a financial asset in which investors pool their investment funds and have them invested under the direction of a manager or management team.
N
NASDAQ – the National Association of Securities Dealers Automated Quotation (NASDAQ) system. It is one of the world’s leading equities market, where the stocks of American companies are bought and sold by brokerage firms and other large institutional investors.
http://www.nasdaq.com/
NASDAQ Composite Index – a measure of the stock market that represents the stocks of small or less-known companies that are traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) system.
national defense – the portion of federal government expenditures that consists of the salaries of military personnel and civilians employed by the Department of Defense plus the purchases of goods and services to support the military.
natural monopoly – a market structure in which it is natural for there to be only one seller of the product because of extremely high fixed costs of production. Public utilities, such as electricity suppliers that must build a power plant or a hydroelectric dam, are examples of natural monopolies. Natural monopolies produce goods or services that are excludable but not rival.
natural rate of unemployment – the normal rate of unemployment around which the unemployment rate fluctuates. The natural rate of unemployment is currently estimated to be 5.5%.
natural resource – anything provided by nature that can be used to satisfy human needs and wants. Examples of natural resources are land, trees, minerals, and fish.
need – something that is required for human sustenance, such as food, water, clothing, and shelter.
net exports (NE) – the difference between the value of a country’s exports (X) and imports (M).
net interest – the amount the government pays on loans from the public.
net worth – the difference between a business firm’s (or an individual’s) assets and liabilities.
New York Stock Exchange (NYSE) – the world’s leading equities market, where the stocks of large, well-established American companies are bought and sold by brokerage firms and other large institutional investors.
http://www.nyse.com/
Nixon, Richard M. – the 37th President of the United States who served from 1969 to 1974.
nominal – not adjusted for inflation.
nominal GDP – the total value of all final goods and services produced in a country in a period of time (usually a year). It is another name for gross domestic product (GDP).
nominal rate of return – the stated rate of return of an investment.
nonrenewable resource – a natural resource that cannot be replaced or its replacement requires an extremely long period of time.
normal good – a product for which an increase in income increases demand.
normative analysis – descriptions of the world the way it should be. Normative analysis is based on opinions.
not in the labor force – people who do not have a paid job and are not looking for one, such as retirees, homemakers, and full-time students.
O
oligopoly – a market structure in which there only a few sellers of the product, and consequently the firms have some influence over the market price.
open market operations – the purchases and sales of government securities by the Federal Reserve System’s Federal Open Market Committee (FOMC) to or from the general public.
open market purchases – the purchases of government securities by the Federal Reserve System’s Federal Open Market Committee (FOMC) from the general public.
open market sales – the sales of government securities by the Federal Reserve System’s Federal Open Market Committee (FOMC) to the general public.
opportunity cost – what is sacrificed or foregone when a choice is made.
opportunity costs, constant – the production condition that occurs when the quantity of one product that must be foregone to obtain a unit of another product is the same, regardless of how much has already been produced.
opportunity costs, increasing – the production condition that occurs when the quantity of one product that must be foregone to obtain a unit of another product increases as more is produced.
P
paper airplane models – models that make extremely simplifying assumptions about the real world to illustrate basic principles that underlie complex phenomena.
paper bills – paper or cloth notes used as money with markings that designate their denominations.
per capita GDP – the nominal value of a country’s output per person. It is calculated by dividing nominal GDP by the country’s population. It is a measure of the average income of a person in the country.
per capita real GDP – a measure of the real value of a country’s output per person. It is calculated by dividing real GDP by the country’s population.
physical capital – anything tangible and man-made that makes labor more productive. Examples of physical capital are computers, cars, pencils, microwave ovens, factories, and machinery.
political bias of fiscal policy – the eagerness of politicians to conduct expansionary policy by cutting taxes and increasing government purchases and reluctance to conduct contractionary policy, which requires tax increases or reductions in government spending.
positive analysis – descriptions of the world the way it is. Positive analysis is based on facts.
post hoc, ergo procter hoc – a Latin phrase that translates as "it happened after, so it was caused by". It is a fallacy of logic.
price – the amount of money or other thing of value traded in exchange for a good or service.
price ceiling – the maximum price that can be legally charged in a market. Rent controls for apartments are an example of a price ceiling.
price control – a legal restriction on the prices charged in the market for a product or resource.
price floor – a legal minimum price at which a product can be sold. The minimum wage is an example of a price floor.
price index – an estimate of the price level that is used to measure inflation. Three commonly used price indices in the United States are the Consumer Price Index (CPI), the Producer Price Index (PPI), and the GDP deflator.
price level – the general level of prices of goods and services in an economy. It is approximated by a price index, such as the Consumer Price Index (CPI), Producer Price Index (PPI), or the GDP deflator.
price, market – the price actually charged in the marketplace. It may or may not be the same as the equilibrium price.
private good – a product that is rival and excludable. One person’s use of a private good diminishes the amount available for others to use and it is possible to prevent people from using it. Most products sold at a shopping mall are private goods.
Producer Price Index (PPI) – a family of indices that measures the price level based on a fixed basket of all goods and services produced and sold by American businesses. It includes consumer products and goods and services used as inputs in the production of other products.
product – a good or service that is the output of human labor.
production – the creation of a good or service.
production possibilities curve (PPC) – a diagram that illustrates the possible production points for an economy based on its resources and technology. It is also called a production possibilities frontier (PPF).
production possibilities frontier (PPF) – a diagram that illustrates the possible production points for an economy based on its resources and technology. It is also called a production possibilities curve (PPC).
productivity – the amount of output that can be produced in an hour of a worker’s time.
profit – revenues minus expenses.
progressive tax – a tax for which high-income taxpayers pay a larger percentage of their income than do low-income taxpayers.
proportional tax – a tax for which high-income and low-income taxpayers pay the same percentage of income.
prospectus – a legal document that provides information to potential investors as required by law.
public debt – the net amount of money borrowed by the federal government. As such, it is also the accumulation of federal budget surpluses and deficits over time.
public finance – the field of economics that studies government revenues, expenditures, budgets, and debt.
public good – a product that is not rival and not excludable. One person’s use of a public good does not diminishes the amount available for others to use and it is difficult to prevent people from using it. National defense is an example of a public good.
purchasing power – the value of the products a person is able to buy with a given amount of money.
Q
quality of life – the degree of satisfaction in a person’s life. It is not the same as the standard of living because it considers things in addition to material possessions and wealth.
quantity – the amount of a good or service that is traded in exchange for money or another thing of value.
quantity demanded – the amount of a good or service that consumers are willing and able to buy at a particular price.
quantity supplied – the amount of a good or service that producers are willing and able to sell at a particular price.
quantity theory of money – a theory that suggests there is a relationship between the supply of money and the inflation rate. If the money supply increases faster than an economy’s output, a likely outcome is inflation.
R
rate of return – the payment an investor earns from engaging in an investment activity. It is sometimes referred to as the interest rate.
rate of return, nominal – the stated rate of return of an investment.
rate of return, real – the nominal rate of return adjusted for inflation.
Reagan, Ronald W. – the 40th President of the United States who served from 1981 to 1989.
Reaganomics – the supply-side economic theory upon which President Ronald Reagan based his economic policies. A notable characteristic of Reaganomics was the reduction in marginal income tax rates that led to large budget deficits.
real – adjusted for inflation. Real data are reported using prices from a common base year.
real GDP – the value of the total final output of a country's economy without the influence of inflation. Real GDP is the output of a country’s final goods and services in constant dollars.
real GDP per capita – the real value of a country’s output per person. It is calculated by dividing real GDP by the country’s population.
real estate – land, houses, and other buildings.
real rate of return – the nominal rate of return adjusted for inflation.
regional Federal Reserve Banks – the Federal Reserve System institutions that oversee the health of the U.S. banking system. The 12 regional Federal Reserve banks also clear checks, issue new currency, withdraw damaged currency from circulation, evaluate some merger applications, administer and make discount loans to banks in their districts, act as liaisons between the business community and the Federal Reserve System, examine state member banks, collect data on local business conditions, and research topics related to the conduct of monetary policy.
http://www.federalreserve.gov/
regressive tax – a tax for which high-income taxpayers pay a smaller percentage of their income than do low-income taxpayers.
renewable resource – a natural resource that is capable of being replaced in a relatively short period of time.
rent control – a price ceiling that specifies the highest price that landlords can legally charge for rent on a designated apartment or house.
required reserve ratio (rr) – the fraction or percentage of deposits that commercial banks are required to hold in the form of reserves.
required reserves – the vault cash and deposits at a regional Federal Reserve Bank that commercial banks hold to meet the Federal Reserve System’s requirement that for every dollar of deposits at a bank, a certain fraction must be kept as reserves.
reserve ratio (R) – the fraction of deposits that banks hold as reserves.
reserves – a commercial bank’s deposits in accounts at a regional Federal Reserve Bank plus currency held in the bank’s vault.
reserves, excess – the vault cash and deposits at a regional Federal Reserve Bank that commercial banks hold is addition to those held to meet the Federal Reserve System’s requirement that for every dollar of deposits at a bank, a certain fraction must be kept as reserves.
reserves, required – the vault cash and deposits at a regional Federal Reserve Bank that commercial banks hold to meet the Federal Reserve System’s requirement that for every dollar of deposits at a bank, a certain fraction must be kept as reserves.
resource, natural – anything provided by nature that can be used to satisfy human needs and wants. Examples of natural resources are land, trees, minerals, and fish.
resource, nonrenewable – a natural resource that cannot be replaced or its replacement requires an extremely long period of time.
resource, renewable – a natural resource that can be replaced in a relatively short period of time.
retained earnings – the portion of a company’s profits that are not distributed to the owners of the business.
return – the payment an investor earns from engaging in an investment activity. It is sometimes referred to as the interest rate.
revenues – the monetary income received by a business in exchange for goods or services.
Ricardo, David – the British economist (1772-1823) who popularized the concept of comparative advantage in his 1817 book, Principles of Political Economy and Taxation.
risk – the relative likelihood that an investment will lose value.
risk-averse – the dislike of uncertainty.
risk, bankruptcy – the relative likelihood that the firm or institution in which you invest goes bankrupt and does not pay you the return they promised you.
risk, interest rate – the loss of a higher potential rate of return or the loss of the value of the financial asset if interest rates increase in the future.
risk-lover – a person who prefers the uncertainty of an outcome.
risk, market – the relative likelihood that your investment will lose value because of fluctuations in the economy.
rival – the characteristic of a product whereby one person’s use of the good or service decreases the amount available for use by other people.
Robinson, Joan Violet – a British economist (1903-1983) who published books and papers on a wide variety of economic topics, such as imperfect competition, capital, money, employment, economic growth, production, trade, Marxian economics, and economic philosophy. She is considered by many people to be the first great female economist. She said, "The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists."
Roosevelt, Franklin D. – the 32nd President of the United States who served from 1933 to 1945. His New Deal social programs represented a significant increase in the government’s attempts to correct perceived market failures.
rule of 70 – states that if a variable grows at a rate of x percent per year, then that variable doubles in approximately 70/x years.
Rust Belt – the heavily industrialized area of the upper Midwestern United States that contains older factories, many of which are closed.
S
S&P 500 – an index of 500 stocks that is a broad measure of the overall stock market. The index was developed by Standard & Poor’s, a company which produces and sells information about financial assets and markets.
salary – a fixed payment made regularly to a worker in exchange for labor.
savings – the portion of a person’s income that is retained or invested for use in the future.
savings account – a bank account designed to accept monetary deposits as a store of value and unit of account, but not as a medium of exchange in the near future. Commercial banks pay savings account depositors a rate of return, called the interest rate, for the use of their deposited funds to make loans.
savings and loan association (S & L) – a financial institution that specializes in savings accounts and home mortgage loans. Most savings and loan associations offer the same services as commercial banks and credit unions.
scarcity – an insufficient amount.
securities – stocks and bonds.
services – products that typically do not create a tangible commodity. Examples of services are health care, haircuts, insurance, banking and legal services and entertainment. Over half of U.S. gross domestic product is services.
shareholders – the owners of a corporation. Because shareholders own shares of stock, they are also called stockholders.
shoe leather costs of inflation – the wasted time and inconveniences caused when inflation encourages people to reduce their holdings of currency.
shortage – the amount by which the quantity demanded exceeds the quantity supplied.
Silicon Valley – a region southeast of San Francisco, California, that is known for its computer and other high-technology industries.
sin tax – an excise tax designed to discourage the consumption of “sinful” products, such as alcohol and tobacco.
Smith, Adam – the Scottish political economist and philosopher (1723-1790) who popularized the concept of absolute advantage in his 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations.
social insurance – a government insurance program designed to provide economic assistance to people in need, such as the unemployed, elderly and disabled.
Social Security – the federal government entitlement program, established by the Social Security Act of 1935, to ensure that elderly and disabled Americans and their dependents have enough income to buy the necessities of life. The program imposes taxes on wage earners and employers, and provides old-age, survivors’, disability, and medical benefits to workers.
http://www.ssa.gov/
specialization – concentration on the production of particular goods and services.
spin-doctors – political publicists who use favorable correlations to trumpet the value of their candidates while ignoring correlations that put their candidates in an unfavorable light.
stagflation – the existence of high inflation and high unemployment at the same time. During a period of stagflation, the economy produces less output, the average person’s income declines, and the prices of most products increase. The name is a combination of stagnation and inflation.
Standard & Poor’s – a company that produces and sells information about financial assets and markets.
standard of living – the value of the goods and services available to an individual, group, or country.
stock – a financial asset that represents a share of ownership of a corporation.
stock, aggressive growth – a share of ownership in a relatively small corporation without a long history of profitability.
stock, blue chip – a share of ownership in a large well-established corporation with a record of consistent earnings over time.
stockholders – the owners of a corporation. Because stockholders own shares of stock, they are also called shareholders.
store of value – something, such as money, used to hold purchasing power for use at a later time.
strike – the organized withdrawal of labor from a business firm by a union.
structural unemployment – unemployment that occurs when workers have job skills that do not match the skills required by available jobs.
structures – buildings.
subsidy – monetary assistance from the government to promote an activity deemed advantageous to the public.
substitute goods – products that people use interchangeably.
substitution effect – the increase in the consumption of a product as its price decreases because some consumers will buy this product as a substitute for something else.
supplied, quantity – the amount that producers are willing and able to sell at a particular price.
supply – the relationship between various prices of a product and the corresponding quantity that producers are willing and able to sell at each of those prices.
supply and demand analysis – an economic modeling technique that examines how the price system allocates resources in a market-based economy.
supply curve – a graphical representation of supply.
supply, law of – states that, other things equal, the quantity supplied of a product increases when the price of the product increases.
supply schedule – a tabular representation of supply.
supply-side economics – an economic theory based on the relationship between tax rates and the incentives to work, save, invest, and engage in tax-avoidance. Supply-side economics suggests a reduction in marginal tax rates may be beneficial to the economy.
surplus – the amount by which the quantity supplied exceeds the quantity demanded.
T
T-account – a simplified balance sheet with lines in the form of a T that lists only the changes that occur in the balance sheet items from some initial position.
tangible commodity – a product that can be touched or held, such as an apple, a sweater, or a house.
tariff – a tax imposed on a product imported from a foreign country or exported to a foreign country. A tariff is also called a duty.
tax – a charge (usually of money) imposed by the government on people or property.
tax benefit – the benefits some investments provide in the form of reduced tax liability. For example, when state and local governments borrow money by selling municipal bonds, the interest on those investments is frequently exempt from state income taxes.
tax breaks – the benefits some investments provide in the form of reduced tax liability. For example, when state and local governments borrow money by selling municipal bonds, the interest on those investments is frequently exempt from state income taxes.
tax efficiency – the relative costs a tax imposes on taxpayers beyond the monetary payments from taxpayers to the government. These costs include the effect on incentives and behavior and the administrative burden of complying with the tax laws.
tax equity – the fairness of the distribution of the tax burden among the population.
tax, flat – a tax in which every taxpayer is subject to the same marginal tax rate.
tax, lump-sum – a tax that is the same monetary amount for every person.
tax, progressive – a tax for which high-income taxpayers pay a larger percentage of their income than do low-income taxpayers.
tax, proportional – a tax for which high-income and low-income taxpayers pay the same percentage of income.
tax rate, average – the total taxes paid divided by total income.
tax rate, marginal – the tax paid on an additional dollar of income.
tax, regressive – a tax for which high-income taxpayers pay a smaller percentage of their income than do low-income taxpayers.
technology – the knowledge and methodology of means of production.
Temporary Assistance for Needy Families (TANF) – a government social program that transfers income from taxpayers to poor families. TANF is the primary U.S. welfare program. It is administered by the Office of Family Assistance, which is part of the U.S. Department of Health and Human Services.
terms of trade – the price at which a product is traded.
"Too much money chasing too few goods" – an expression that describes demand-pull inflation, which is an increase in the price level caused by excess demand for newly produced goods and services. Society’s demand for new products exceeds its ability to produce them.
trade – the exchange of goods and services for other products, money, or other compensation.
trade adjustment assistance – a federal program that provides financial assistance to workers in industries injured by import competition.
tradeoff – an exchange of one thing in return for another.
tradition – an economic system that allocates economic resources by custom.
traditional conservative – a person who believes there are limited opportunities for the government to correct market failures or who believes the government is ineffective at correcting market failures. Traditional conservatives usually favor a relatively small role for government in regulating the economy. For example, conservatives usually think it is not appropriate for the government to take actions to reduce pollution, poverty, and market power.
traditional liberal – a person who believes there are many opportunities for the government to correct market failures and thus favors a relatively large role for government in regulating the economy. For example, liberals usually think it is appropriate for the government to take actions to reduce pollution, poverty, and market power.
transactions money – money that is needed to make purchases or pay bills in the near future.
transfer payment – a government payment not made in exchange for a good or service. Examples of transfer payments are Social Security benefits, government pensions, and welfare payments.
traveler’s check – a draft, available in various denominations, that must be signed at the time of purchase and which can be redeemed only when countersigned with a matching signature at the time of redemption.
U
underemployed worker – an adult with a paid job who is not working as much as he or she wants or needs to work.
underemployment – the condition of having a paid job, but not working as much as the adult wants or needs to work.
unemployed – adults who do not have a paid job, but are looking for one. This labor market category includes workers who are temporarily laid off and people who have found a job and are waiting for it to begin.
unemployment – the condition of wanting, but not having, a paid job.
unemployment insurance – a government program that temporarily provides unemployed workers with a fraction of their previous earnings.
unemployment, natural rate of – the normal rate of unemployment around which the unemployment rate fluctuates. The natural rate of unemployment is currently estimated to be 5.5%.
unemployment rate – the percentage of the labor force that is unemployed.
unit of account – something, such as money, that is commonly used to measure the prices of things.
U.S. federal budget balance – the difference between U.S. government revenues and U.S. government expenditures.
U.S. government securities – long-term debt instruments (such as bonds) issued by the U.S. Treasury to finance the budget deficits of the federal government.
V
value added tax (VAT) – a type of consumption tax that is based on the additional value of a product added at each stage of the production process.
vault cash – the currency held in a commercial bank’s vault.
velocity of money – an estimate of the number of times each dollar is used as a medium of exchange in a period of time (usually a year). It attempts to measure how frequently money is used to buy a good or service.
vertical equity – the principle that taxpayers with a greater ability to pay taxes should pay larger amounts.
W
wage – the payment made to a worker in exchange for labor, typically based upon the amount of time worked or amount of output produced.
wage rate – the price of labor; the amount a worker is paid for an hour of his labor.
wage rate, equilibrium – the price of labor at which the quantity of labor supplied equals the quantity of labor demanded.
wage rate, market – the price of labor paid in a labor market. It may or may not be the same as the equilibrium wage rate.
wage, minimum – a price floor that specifies the lowest price that employers can legally pay for labor.
want – something that is desired, but not essential for human sustenance.
white-collar worker – an adult who performs work that does not involve manual labor, is paid an annual salary instead of hourly wages, and is expected to dress with some formality. Examples of white-collar workers are attorneys, bankers, and business executives.
X
X-axis – the horizontal axis of a graph. In supply and demand analysis, it is traditional to measure quantity on the X-axis.
Y
Yap – an island state in the Western Caroline Islands of the Federated States of Micronesia in the North Pacific Ocean. Yap is best known for its use of giant stones as money.
Y-axis – the vertical axis of a graph. In supply and demand analysis, it is traditional to measure price on the Y-axis.
Z
zero-sum game – a game in which the gains and losses of all the players sum to zero. Mercantilism is a philosophy that viewed trade as a zero-sum game.
