Name _____________________________________________________ per. _______ Date _________
Economics State Standards Vocabulary List
Unit 1 Vocabulary
1.
scarcity- limited quantities of resources to meet unlimited wants
2.
economics- the study of how people seek to satisfy their needs and wants by making choices
3.
limited resources- A non-renewable resource is a natural resource which cannot be produced, grown, generated, or used on a scale which
can sustain its consumption rate, once depleted there is no more available for future needs. Also considered non-renewable are resources
that are consumed much faster than nature can create them. Fossil fuels (such as coal, petroleum, and natural gas), nuclear power (uranium)
and certain aquifers are examples. In contrast, resources such as timber (when harvested sustainably) or metals (which can be recycled) are
considered renewable resources.
4.
unlimited resources- is a natural resource with the ability of being replaced through biological or other natural processes and replenished
with the passage of time. Renewable resources are part of our natural environment and form our eco-system
5.
wants- an item that we desire but that is not essential to survival
6.
factors of production- land, labor and capital; the three groups of resources that are used to make all goods and services
7.
capital- any human-made resource that is used to create other goods and services
8.
entrepreneurship- ambitious leader who combines land, labor and capital to create and market new goods and services
9.
technology- is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to
solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures.
10. marginal cost - is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing
one more unit of a good[
11. production possibilities- alternative ways to use an economy’s resources
12. opportunity costs- the most desirable alternative given up as the result of a decision
13. trade-offs- an alternative that we sacrifice when we make a decision
14. renewable resource- is a natural resource with the ability of being replaced through biological or other natural processes and replenished
with the passage of time. Renewable resources are part of our natural environment and form our eco-system
15. standards of living- refers to the level of wealth, happiness, comfort, material goods and necessities available to a certain socioeconomic
class in a certain geographic area. The standard of living includes factors such as income, quality and availability of employment, class
disparity, poverty rate, quality and affordability of housing, hours of work required to purchase necessities, gross domestic product,
inflation rate, number of vacation days per year, affordable (or free) access to quality healthcare, quality and availability of education, life
expectancy, incidence of disease, cost of goods and services, infrastructure, national economic growth, economic and political stability,
political and religious freedom, environmental quality, climate and safety. The standard of living is closely related to quality of life.
16. interdependence- is a relation between its members such that each is mutually dependent on the others. This concept differs from a simple
dependence relation, which implies that one member of the relationship can't function or survive apart from the other(s).
17. voluntary exchange- is the act of buyers and sellers freely and willingly engaging in market transactions. Moreover, transactions are made
in such a way that both the buyer and the seller are better off after the exchange than before it occurred. Economists believe that voluntary
exchanges are more conducive to economic efficiency than exchanges mandated by governments.
18. households- The household is the basic unit of analysis in many social, microeconomic and government models. The term refers to all
individuals who live in the same dwelling. Money Flow- In a modern two sector economy, money acts as a medium of exchange between
goods and factor services. Money flow of income refers to a monetary payment from firms to households for their factor services and in
return monetary payments from households to firms against their goods and services. Household sector gets monetary reward for their
services in the form of rent, wages, interest, and profit form firm sector and spends it for obtaining various types of goods to satisfy their
wants.
19. firms- Any business, such as a sole proprietorship, partnership or corporation.
20. government- Controls some aspects of the economy, regulates and taxes. Government refers to the legislators, administrators, and
arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are
organized
21. circular flow model- visual model of the economy that shows how dollars flow through markets among households and firms
22. entrepreneurs- ambitious leader who combines land, labor and capital to create and market new goods and services
23. market economy- A market economy is an economy in which decisions regarding investment, production and distribution are based on
supply and demand and the prices of goods and services are determined in a free price system.
Unit 2 Markey Structures Vocabulary
24. market economic system- is an economy in which decisions regarding investment, production and distribution are based on supply and
demand and the prices of goods and services are determined in a free price system.This is contrasted with a planned economy, where
investment and production decisions are embodied in a plan of production.
25. command economic system- A system where the government, rather than the free market, determines what goods should be produced,
how much should be produced and the price at which the goods will be offered for sale. The command economy is a key feature of any
communist society. China, Cuba, North Korea and the former Soviet Union are examples of countries that have command economies.
26. mixed economic system- Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting
characteristics of both market economies and planned economies.[1] Most mixed economies can be described as market economies with
strong regulatory oversight, in addition to having a variety of government-sponsored aspects.
27. production- is the act of creating output, a good or service which has value and contributes to the utility of individuals. The act may or
may not include factors of production other than labor. Any effort directed toward the realization of a desired product or service is a
"productive" effort and the performance of such act is production. The relation between the amount of inputs used in production and the
resulting amount of output is called the production function.
28. distribution- is one of the four elements of the marketing mix. An organization or set of organizations (go-between) involved in the
process of making a product or service available for use or consumption by a consumer or business user.
29. consumption- is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is
defined in part by comparison to production. But the precise definition can vary because different schools of economists define production
quite differently. According to mainstream economists, only the final purchase of goods and services by individuals constitutes
consumption, while other types of expenditure — in particular, fixed investment, intermediate consumption and government spending —
are placed in separate categories. See consumer choice.
30. private ownership- is the ownership, control, employment, ability to dispose of, and bequeath land, capital, and other forms of property by
persons and privately-owned firms.[1] Private property is distinguishable from public property and collective property, which refers to
assets owned by a state, community or government rather than by individuals or a business entity.
31. consumer sovereignty- is a term used in economics. It refers to consumers determining the production of goods[The term can prescribe
what consumers should be permitted, or describe what consumers are permitted. The term was coined by William Hutt in his 1936 book
"Economists and the Public". In unrestricted markets, those with income or wealth are able to use their purchasing power to motivate
producers. Customers do not necessarily have to buy and, if dissatisfied, can take their business elsewhere, while the profit-seeking sellers
find that they can make the greatest profit by providing the best possible products for the price (or the lowest possible price for a given
product).
32. competition- the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable
terms. It was described by Adam Smith in The Wealth of Nations (1776) and later economists as allocating productive resources to their
most highly-valued uses and encouraging efficiency. Later microeconomic theory distinguished between perfect competition and imperfect
competition, concluding that no system of resource allocation is more efficient than perfect competition. Competition, according to the
theory, causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and
better products. The greater selection typically causes lower prices for the products, compared to what the price would be if there was no
competition (monopoly) or little competition (oligopoly).
33. government regulation- is administrative legislation that constitutes or constrains rights and allocates responsibilities.
Regulations, like any other form of coercive action, have costs for some and benefits for others. Efficient regulations are defined as those
where the total benefits to some people exceed the total costs to others. Regulations are justified using a variety of reasons and therefore
can be classified in several broad categories:
Market failures - regulation due to inefficiency. Intervention due to a classical economics argument to market failure. -Risk of monopoly
-Collective action, or public good
-Inadequate information
-Unseen externalities
34. public ownership- is property, which is dedicated to the use of the public. It is a subset of state property. The term may be used either to
describe the use to which the property is put, or to describe the character of its ownership (owned collectively by the population of a state).
35. profit motive- is the concept in economics that refers to individuals being provided incentive to relinquish something (e.g. capital,
expertise, labor) for deployment to a productive purpose. If humans are rational and self-interested (see Homo economicus), then they
should only divert some of their personal resource toward production for others in society (i.e. invest) if there is some payback for their
self-sacrifice and risk. If there was no profit motive then the rational actor would merely conserve their resource for personal use and no
investment would occur. The concept of profit motive was first raised by Adam Smith to explain why rational actors should invest their
personal resources and why they needed to be provided a rent for use of that capital. Adam Smith also explained why the profit motive was
an intrinsic enabler of the efficient utilization of an economy's resources toward society's overall benefit. Economies that are utilizing their
economic resource for maximum sustainable societal benefit need to be both profit efficient and productivity efficient (including labor
efficiency, resource efficiency and sustainability). The profit motive must be sufficiently high to incentives owners of capital to deploy
their capital, but not so high as to extract too much rent from the productive capacity of the economy.
36. Adam Smith- (father of modern economics) Smith has been celebrated by advocates of free market policies as the founder of free market
economics. The Wealth of Nations was a precursor to the modern academic discipline of economics. In this and other works, Smith
expounded how rational self-interest and competition can lead to economic prosperity.
37. KarlMarx- (Communism) For Karl Marx, the basic determining factor of human history is economics. According to him, humans — even
from their earliest beginnings — are not motivated by grand ideas but instead by material concerns, like the need to eat and survive. This is
the basic premise of a materialist view of history. At the beginning, people worked together in unity and it wasn’t so bad. But eventually,
humans developed agriculture and the concept of private property. These two facts created a division of labor and a separation of classes
based upon power and wealth. This, in turn, created the social conflict which drives society. All of this is made worse by capitalism which
only increases the disparity between the wealthy classes and the labor classes. Confrontation between them is unavoidable because those
classes are driven by historical forces beyond anyone’s control. Capitalism also creates one new misery: exploitation of surplus value. For
Marx, an ideal economic system would involve exchanges of equal value for equal value, where value is determined simply by the amount
of work put into whatever is being produced. Capitalism interrupts this ideal by introducing a profit motive — a desire to produce an
uneven exchange of lesser value for greater value. Profit is ultimately derived from the surplus value produced by workers in factories. A
laborer might produce enough value to feed his family in two hours of work, but he keeps at the job for a full day — in Marx’s time, that
might be 12 or 14 hours. Those extra hours represent the surplus value produced by the worker. The owner of the factory did nothing to
earn this, but exploits it nevertheless and keeps the difference as profit. In this context, Communism thus has two goals: First it is supposed
to explain these realities to people unaware of them; second it is supposed to call people in the labor classes to prepare for the confrontation
and revolution. This emphasis on action rather than mere philosophical musings is a crucial point in Marx’s program. As he wrote in his
famous Theses on Feuerbach : “The philosophers have only interpreted the world, in various ways; the point, however, is to change it.”
38. John Maynard Keynes- (stimulus plan) a British economist whose ideas have profoundly affected the theory and practice of modern
macroeconomics, as well as the economic policies of governments. He greatly refined earlier work on the causes of business cycles, and
advocated the use of fiscal and monetary measures to mitigate the adverse effects of economic recessions and depressions. His ideas are the
basis for the school of thought known as Keynesian economics, as well as its various offshoots.
39. invisible hand- Market prices deliver information to producers on how to allocate capital and other resources. Prices tell producers about
consumer needs and wants by showing them how much consumers are willing to pay for a particular good or service. Prices also inform
consumers by sending signals about how much of a given product is available. These market prices act as an “invisible hand” that pushes
self-interested individuals toward the correct allocation of resources, benefiting both the individuals and society as a whole. No one person
is consciously making these decisions.
Unit 3 Microeconomics Vocabulary
40. elasticity- A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which
individuals (consumers/producers) change their demand/amount supplied in response to price or income changes.
41. demand The degree to which demand for a good or service varies with its price. Normally, sales increase with drop in prices and decrease
with rise in prices. As a general rule, appliances, cars, confectionary and other non-essentials show elasticity of demand whereas most
necessities (food, medicine, basic clothing) show inelasticity of demand (do not sell significantly more or less with changes in price).
42. supply- Responsiveness of producers to changes in the price of their goods or services. As a general rule, if prices rise so does the supply.
Elasticity of supply is measured as the ratio of proportionate change in the quantity supplied to the proportionate change in price. High
elasticity indicates the supply is sensitive to changes in prices, low elasticity indicates little sensitivity to price changes, and no elasticity
means no relationship with price.
43. market price- The current price at which an asset or service can be bought or sold. Economic theory contends that the market price
converges at a point where the forces of supply and demand meet. Shocks to either the supply side and/or demand side can cause the
market price for a good or service to be re-evaluated.
44. equilibrium- The state in which market supply and demand balance each other and, as a result, prices become stable. Generally, when
there is too much supply for goods or services, the price goes down, which results in higher demand. The balancing effect of supply and
demand results in a state of equilibrium.
45. changes in supply and demand- Supply and Demand Movements Changes in quantity demanded strictly as a function of price are
referred to as movement along a demand curve. A shift of the entire demand curve is referred to as a change in demand; this could be due
to any factor(s) that affects demand, other than price. Changes in quantity supplied strictly as a function of price are referred to as
movement along a supply curve. A shift of the entire supply curve is referred to as a change in supply; this could be due to any factor(s)
that affects supply, other than price.
46. price ceilings- The maximum price a seller is allowed to charge for a product or service. Price ceilings are usually set by law and limit the
seller pricing system to ensure fair and reasonable business practices. Price ceilings are usually set for essential expenses; for example,
some areas have "rent ceilings" to protect renters from climbing rent prices.
47. price floor- The lowest acceptable limit as restricted by controlling parties. Floors can be established for a number of factors, including
prices, wages, interest rates, underwriting standards and bonds. Some types of floors, such as underwriting floors, act as mere guidelines
while others, such as price and wage floors, are regulatory constraints that restrict the natural behavior of free markets.
48. shortage- exists when the quantity demanded at the current price is greater than the quantity supplied. In the case of shortage, we would
expect the market price to go up. In this case, less motivated buyers do not purchase the good and producers have a strong incentive to
supply more at the higher market price. This process will continue until the quantity demanded is equal to the quantity supplied.
49. surplus- exists when the quantity supplied is greater than the quantity demanded. In this case, we would expect the market price to go
down. The lower market price entices more consumers into buying, but lower profits create an incentive for producers to reduce the
quantity supplied.
50. monopolistic- A type of competition within an industry where:
All firms produce similar yet not perfectly substitutable products.
All firms are able to enter the industry if the profits are attractive.
All firms are profit maximizers.
All firms have some market power, which means none are price takers.
51. economic behaviors- the way a people act or react in given situations
52. competitive behaviors- The direct struggle between individuals for environmental necessities or for a common goal.
53. fixed cost- A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses
that have to be paid by a company, independent of any business activity. It is one of the two components of the total cost of a good or
service, along with variable cost.
54. variable cost- A corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's
production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent,
advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs
comprise total cost.
55. marginal cost- The change in total cost that comes from making or producing one additional item. The purpose of analyzing marginal cost
is to determine at what point an organization can achieve economies of scale. The calculation is most often used among manufacturers as a
means of isolating an optimum production level.
56. sole proprietorship- The sole proprietor is an unincorporated business with one owner who pays personal income tax on profits from the
business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual
self contractors or business owners.
57. partnership- A business organization in which two or more individuals manage and operate the business. Both owners are equally and
personally liable for the debts from the business.
58. corporation- A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an
individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees,
own assets and pay taxes. The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate
in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts.
59. stockholders- A shareholder or stockholder is an individual or institution (including a corporation) that legally owns any part of a share of
stock in a public or private corporation. Shareholders own the stock, but not the corporation itself.
60. board of directors- A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate
management related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend
policies, options policies and executive compensation. Every public company must have a board of directors.
61. officers- The Board in turn elects the officers of the corporation, typically a Chief Operating Officer or President, Vice President,
Secretary, and Chief Financial Officer, to handle the day-to-day affairs of the corporation.
62. liability- A company's legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through
the transfer of economic benefits including money, goods or services.
63. corporate bonds - Bonds are promissory notes, IOUs if you will, issued by a corporation or government to its lenders. They are usually
issued in multiples of $1,000 or $5,000. The standard, or par, is $1,000. The bond indenture specifies the amount of interest to be paid at
intervals, (usually every six months), over a specific length of time and the principal, (or original loan amount), to be repaid on the maturity
date. A bondholder is a creditor; a shareholder is an owner.
64. stocks (share) The stock of a business is divided into multiple shares, the total of which must be stated at the time of business formation.
Given the total amount of money invested in the business, a share has a certain declared face value, commonly known as the par value of a
share.
65. SEC- A government commission created by Congress to regulate the securities markets and protect investors. In addition to regulation and
protection, it also monitors the corporate takeovers in the U.S. The SEC is composed of five commissioners appointed by the U.S.
President and approved by the Senate. The statutes administered by the SEC are designed to promote full public disclosure and to protect
the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in
interstate commerce, through the mail or on the internet must be registered with the SEC. Here's an example of an activity that falls within
the SEC's domain: if someone purchases more than 5% of a company's equity, he or she must report to the SEC within 10 days of the
purchase because of the takeover threats it may cause.
Unit 4 Measurement and Fiscal Policy Vocabulary
66. business cycle- A business cycle is a term used to describe a specific period of time where the business has good and bad financial times.
It's important in helping the company work on problems that they may have. The 4 cycles of business are recession, low point or
depression, expansion and recovery and then finally, peak.
67. recession- A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production,
employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative
economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER)
does not necessarily need to see this occur to call a recession.
68. depression- A severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price
levels.
69. prosperity- is the state of flourishing, thriving, good fortune and / or successful social status. Prosperity often encompasses wealth but also
includes others factors which are independent of wealth to varying degrees, such as happiness and health
70. recovery- A period of increasing business activity signaling the end of a recession. Much like a recession, an economic recovery is not
always easy to recognize until at least several months after it has begun. Economists use a variety of indicators, including GDP, inflation,
financial markets and unemployment to analyze the state of the economy and determine whether a recovery is in progress.
71. inflation- The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a
minimum.
72. consumer price index (CPI)- A measure that examines the weighted average of prices of a basket of consumer goods and services, such as
transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and
averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the
cost of living.
73. unemployment- occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a
measure of the health of the economy. The most frequently cited measure of unemployment is the unemployment rate. This is the number
of unemployed persons divided by the number of people in the labor force.
74. gross domestic product (GDP) – The monetary value of all the finished goods and services produced within a country's borders in a
specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government
outlays, investments and exports less imports that occur within a defined territory.
75. borrowers- the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay
back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial
repayments; in an annuity, each installment is the same amount.
76. lenders- Someone who makes funds available to another with the expectation that the funds will be repaid, plus any interest and/or fees. A
lender can be an individual, or a public or private group. Lenders may provide funds for a variety of reasons, such as a mortgage,
automobile loan or small business loan.
77. cost of living adjustments- An adjustment made to Social Security and supplemental security income in order to adjust benefits to
counteract the effects of inflation. COLAs are generally equal to the percentage increase in the consumer price index for urban wage
earners and clerical workers (CPI-W) for a specific period.
78. fiscal policy- Government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates and
government spending, in an effort to control the economy.
79. government policies-“Fiscal Policy” Government spending policies that influence macroeconomic conditions. These policies affect tax
rates, interest rates and government spending, in an effort to control the economy.
80. economy- The large set of inter-related economic production and consumption activities which aid in determining how scarce resources are
allocated.
81. federal spending- all of the money that the Federal Government spends using monies brought in through Federal taxes and other means.
82. state spending- all of the money that the State Government spends using monies brought in through State taxes and other means.
83. government spending- Expenditures made in the private sector by all levels of government, such as when a government entity contracts a
construction company to build office space or pave highways. A component of Keynesian expenditures, government purchases can be used
as a tool for a government to influence the business cycle and provide economic stimulation when it is deemed necessary.
84. progressive taxes- A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals.
The United States income tax is considered progressive: in 2010, individuals who earned up to $8,375 fell into the 10% tax bracket, while
individuals earning $373,650 or more fell into the 35% tax bracket. Basically, taxpayers are broken down into categories based on taxable
income; the more one earns, the more taxes they will have to pay once they cross the benchmark cut-off points between the different tax
bracket levels. The U.S. progressive income tax is effectively a means of income redistribution. Individuals who earn more pay higher
taxes; those taxes are then used to fund social welfare programs that are used primarily by individuals who earn less. Critics of the
progressive tax consider it to be discriminatory and believe that a flat tax system, which imposes the same tax on everyone regardless of
income, is a fairer method of taxation.
85. proportional taxes- An income tax that takes the same percentage of income from everyone regardless of how much (or little) an
individual earns. The U.S. and Canada do not use this system. It is quite controversial and certainly debatable whether or not this is a fair
system.
86. regressive taxes- A tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally
a tax that is applied uniformly. This means that it hits lower-income individuals harder. Some examples include gas tax and cigarette tax.
For example, if a person has $10 of income and must pay $1 of tax on a package of cigarettes, this represents 10% of the person's income.
However, if the person has $20 of income, this $1 tax only represents 5% of that person's income. Sales taxes that apply to essentials are
generally considered to be regressive as well because expenses for food, clothing and shelter tend to make up a higher percentage of a
lower income consumer's overall budget. In this case, even though the tax may be uniform (such as 7% sales tax), lower income consumers
are more affected by it because they are less able to afford it.
Unit 5 Money, Banking, Monetary Policy Vocabulary
87. currency- A generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an
economy. Used as a medium of exchange for goods and services, currency is the basis for trade.
88. Great Depression- An economic recession that began on October 29, 1929, following the crash of the U.S. stock market. The Great
Depression originated in the United States, but quickly spread to Europe and the rest of the world. Lasting nearly a decade, the Depression
caused massive levels of poverty, hunger, unemployment and political unrest. The NYSE crashed on October 24, 1929, a day known as
Black Thursday. Thousands of people lost nearly the entire value of their investments, leaving them with next to nothing. The trend
continued and the following Tuesday, Black Tuesday, the DJIA dropped 12%, marking the start of the great depression. International trade
declined, along with personal income, tax revenues and product prices. Many economists believed the Great Depression was evidence that
capitalism, when left unchecked, is a dangerous ideology. This caused some nations to change their political structures, such as Germany,
who adopted fascism.
89. functions of the Federal Reserve- The banks that carry out Fed operations, including controlling the money supply and regulating
member banks. There are 12 District Feds, headquartered in Boston, New York, Philadelphia, Cleveland, St. Louis, San Francisco,
Richmond, Atlanta, Chicago, Minneapolis, Kansas City and Dallas. They are also known as "district Feds." These banks are the operating
arms of the central bank. They implement the policies of the Federal Reserve Board and also carry out economic research.
90. monetary policy- The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of
the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or
changing the amount of money banks need to keep in the vault (bank reserves). In the United States, the Federal Reserve is in charge of
monetary policy. Monetary policy is one of the ways that the U.S. government attempts to control the economy. If the money supply grows
too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow. In
general, the U.S. sets inflation targets that are meant to maintain a steady inflation of 2% to 3%.
91. financial institutions- An establishment that focuses on dealing with financial transactions, such as investments, loans and deposits.
Conventionally, financial institutions are composed of organizations such as banks, trust companies, insurance companies and investment
dealers. Almost everyone has deal with a financial institution on a regular basis. Everything from depositing money to taking out loans and
exchange currencies must be done through financial institutions.
92. securities markets- Securities market is an economic institute within which take place sale and purchase transactions of securities between
subjects of economy on the base of demand and supply. Also we can say that securities market is a system of interconnection between all
participants (professional and nonprofessional) that provides effective conditions: to buy and sell securities, and also to attract new capital
by means of issuance new security (securitization of debt), to transfer real asset into financial asset, to invest money for short or long term
periods with the aim of deriving profit.
93. reserve requirement- is a central bank regulation that sets 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
94. discount rate- 1. The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal
Reserve Bank. Different types of loans are available from Federal Reserve Banks and each corresponding type of credit has its own
discount rate. This type of borrowing from the Fed is fairly limited. Institutions will often seek other means of meeting short-term liquidity
needs. The Federal Funds Discount Rate is determined by the average rate which banks are willing to charge each other for overnight
funds.
2. The interest rate used in discounted cash flow analysis to determine the present value of future cash flows. The discount
rate takes
into account the time value of money (the idea that money available now is worth more than the same amount of
money available in
the future because it could be earning interest) and the risk or uncertainty of the anticipated future cash
flows (which might be less
than expected). Let's say you expect $1,000 dollars in one year's time. To determine the present
value of this $1,000 (what it is worth to
you today) you would need to discount it by a particular rate of interest. Assuming a
discount rate of 10%, the $1,000 in a year's time
would be the equivalent of $909.09 to you today (1000/[1.00 + 0.10]).
95. open market operations- The buying and selling of government securities in the open market in order to expand or contract the amount of
money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the
opposite. Open market operations are the principal tools of monetary policy. (The discount rate and reserve requirements are also used.)
The U.S. Federal Reserve's goal in using this technique is to adjust the federal funds rate--the rate at which banks borrow reserves from
each other.
Unit 6 Personal Finance and Decision Making Vocabulary
96. income- Economic wealth that is generated in exchange for an individual's performance of agreed upon activities or through investing
capital. Income is consumed to fuel day-to-day expenditures. In businesses, income can refer to a company's remaining revenues after all
expenses and taxes have been paid. In this case, it is also known as "earnings".
97. spending- the act of consuming goods in an economy
98. saving- is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan. Saving
also includes reducing expenditures, such as recurring costs. In terms of personal finance, saving specifies low-risk preservation of money,
as in a deposit account, versus investment, wherein risk is higher.
99. investing- putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the
principal amount, as well as security of return, within an expected period of time.
100. checking- A transactional deposit account held at a financial institution that allows for withdrawals and deposits. Money held in a checking
account is very liquid, and can be withdrawn using checks, automated cash machines and electronic debits, among other methods. A
checking account differs from other bank accounts in that it often allows for numerous withdrawals and unlimited deposits, whereas
savings accounts sometimes limit both. Checking accounts can include business accounts, student accounts and joint accounts along with
many other types of accounts which offer similar features. In exchange for the liquidity, checking accounts typically do not offer a high
interest rate, but if held at a chartered banking institution will be FDIC guaranteed up to $100,000 per individual depositor. A checking
account may also be called a "demand account" or "transactional account. Checking accounts are offered by most banking institutions for a
minimal fee or no fee at all. Thanks to advances in electronic banking, many people can now use checking accounts to set up automatic
payment of routine monthly expenses with a one-time setup. For the large commercial banks, checking accounts are considered loss
leaders because they have become highly commoditized (hence the low fees for their use). The goal of most banks is to entice the customer
to use more profitable features such as personal loans, mortgages and certificates of deposit (CDs). Because money held in checking
accounts is so liquid, aggregate balances nationwide are used in the calculation of the M1 money supply.
101. budget- An estimation of the revenue and expenses over a specified future period of time. A budget can be made for a person, family,
group of people, business, government, country, multinational organization or just about anything else that makes and spends money. A
budget is a microeconomic concept that shows the tradeoff made when one good is exchanged for another.
102. stocks- represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a
business since it cannot be withdrawn to the detriment of the creditors. Stock is different from the property and the assets of a business
which may fluctuate in quantity and value.
103. bonds- A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined
period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a
variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes,
along with stocks and cash equivalents. The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and
when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semiannually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are
collectively referred to as simply "Treasuries". Two features of a bond - credit quality and duration - are the principal determinants of a
bond's interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are
typically in the three to 10-year range.
104. mutual funds- An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in
securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest
the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and
maintained to match the investment objectives stated in its prospectus. One of the main advantages of mutual funds is that they give small
investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if
not impossible) to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund. Mutual
fund units, or shares, are issued and can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per
share, which is sometimes expressed as NAVPS.
105. credit- is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party
immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at
a later date. The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit).
Credit encompasses any form of deferred payment. Credit is extended by a creditor, also known as a lender, to a debtor, also known as a
borrower.
106. risk- The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the
original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average
returns of a specific investment. A high standard deviations indicates a high degree of risk. Many companies now allocate large amounts of
money and time in developing risk management strategies to help manage risks associated with their business and investment dealings. A
key component of the risk management process is risk assessment, which involves the determination of the risks surrounding a business or
investment. A fundamental idea in finance is the relationship between risk and return. The greater the amount of risk that an investor is
willing to take on, the greater the potential return. The reason for this is that investors need to be compensated for taking on additional risk.
For example, a U.S. Treasury bond is considered to be one of the safest (risk-free) investments and, when compared to a corporate bond,
provides a lower rate of return. The reason for this is that a corporation is much more likely to go bankrupt than the U.S. government.
Because the risk of investing in a corporate bond is higher, investors are offered a higher rate of return.
107. return- The gain or loss of a security in a particular period. The return consists of the income and the capital gains relative on an
investment. It is usually quoted as a percentage. The general rule is that the more risk you take, the greater the potential for higher return and loss.
108. liquidity- 1. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is
characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.2. The ability to convert
an asset to cash quickly. Also known as "marketability". There is no specific liquidity formula; however, liquidity is often calculated by
using liquidity ratios.
Unit 7 International Trade Vocabulary
109. trade- is the transfer of ownership of goods and services from one person or entity to another by getting something in exchange from the
buyer. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market.
110. comparative advantage- A situation in which a country, individual, company or region can produce a good at a lower opportunity cost
than a competitor. Let's break this down into a simple example. Suppose that two firms both produce two main products: ice cream and
bicycles. The first firm, the Danish Ice Cream and Bicycle Co., is located in Denmark, where dairy milk is abundant; the second firm, the
Gobi Ice Cream and Bicycle Co., is smack in the middle of the Gobi Desert. The Gobi Ice Cream and Bicycle Co. must spend a lot of
money to make ice cream, whereas the Danish Ice Cream and Bicycle Co. spends way less to produce the same amount. The two firms are
dead even in their production costs for bicycles. Because the Danish Ice Cream and Bicycle Co. has a comparative advantage with ice
cream production, it should probably consider turning exclusively to ice cream. Along the same vein, the Gobi Ice Cream and Bicycle Co.
should probably give up the ice cream and focus on the product in which it is the least disadvantaged (bicycles).
111. protectionism- Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local
businesses and jobs from foreign competition. Typical methods of protectionism are import tariffs, quotas, subsidies or tax cuts to local
businesses and direct state intervention. Any time a government undertakes any of these actions, they are engaging in protectionism. There
is significant debate surrounding the merits of protectionism. Critics argue that, over the long term, protectionism often ends up hurting the
people it is intended to protect and often promotes free trade as a superior alternative to protectionism.
112. tariffs- A tax imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and
services, making them more expensive to consumers. They are one of several tools available to shape trade policy. Governments may
impose tariffs to raise revenue or to protect domestic industries from foreign competition, since consumers will generally purchase cheaper
foreign produced goods. Tariffs can lead to less efficient domestic industries, and can lead to trade wars as exporting countries reciprocate
with their own tariffs on imported goods. Organizations such as the WTO exist to combat the use of egregious tariffs.
113. quotas- In the context of international trade, this is a limit put on the amount of a specific good that can be imported Quotas are used to
prevent other countries from "dumping."
114. standard of living- The level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain
geographic area. The standard of living includes factors such as income, quality and availability of employment, class disparity, poverty
rate, quality and affordability of housing, hours of work required to purchase necessities, gross domestic product, inflation rate, number of
vacation days per year, affordable (or free) access to quality healthcare, quality and availability of education, life expectancy, incidence of
disease, cost of goods and services, infrastructure, national economic growth, economic and political stability, political and religious
freedom, environmental quality, climate and safety. The standard of living is closely related to quality of life. The standard of living is
often used to compare geographic areas, such as the standard of living in the United States versus Canada, or the standard of living in St.
Louis versus New York. The standard of living can also be used to compare distinct points in time. For example, compared with a century
ago, the standard of living in the United States has improved greatly. The same amount of work buys an increased quantity of goods, and
items that were once luxuries, such as refrigerators and automobiles, are now widely available. As well, leisure time and life expectancy
have increased, and annual hours worked have decreased.
115. balance of trade- The difference between a country's imports and its exports. Balance of trade is the largest component of a country's
balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items
include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit
if it imports more than it exports; the opposite scenario is a trade surplus. Also referred to as "trade balance" or "international trade
balance." The balance of trade is one of the most misunderstood indicators of the U.S. economy. For example, many people believe that a
trade deficit is a bad thing. However, whether a trade deficit is bad thing is relative to the business cycle and economy. In a recession,
countries like to export more, creating jobs and demand. In a strong expansion, countries like to import more, providing price competition,
which limits inflation and, without increasing prices, provides goods beyond the economy's ability to meet supply. Thus, a trade deficit is
not a good thing during a recession but may help during an expansion.
116. balance of payments- A record of all transactions made between one particular country and all other countries during a specified period of
time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative
balance of payments means that more money is flowing out of the country than coming in, and vice versa. Balance of payments may be
used as an indicator of economic and political stability. For example, if a country has a consistently positive BOP, this could mean that
there is significant foreign investment within that country. It may also mean that the country does not export much of its currency. This is
just another economic indicator of a country's relative value and, along with all other indicators, should be used with caution. The BOP
includes the trade balance, foreign investments and investments by foreigners.
117. developed countries- While there is no one, set definition of a developed economy it typically refers to a country with a relatively high
level of economic growth and security. Some of the most common criteria for evaluating a country's degree of development are per capita
income or gross domestic product (GDP), level of industrialization, general standard of living and the amount of widespread infrastructure.
Increasingly other non-economic factors are included in evaluating an economy or country's degree of development, such as the Human
Development Index (HDI) which reflects relative degrees of education, literacy and health. The most well-known current examples of
developed countries include the United States, Canada and most of western Europe, including England and France.
118. developing countries- A country that is considered lacking in terms of its economy, infrastructure and industrial base. The population of a
lesser-developed country often has a relatively low standard of living, due to low incomes and abundant poverty. Also referred to as
"emerging markets". A lesser-developed country is usually poor, as measured by per capita gross domestic product, and unmodernized.
LDCs rely primarily on agriculture as a source of income and industrial practices usually contribute to less than 10% of the nation's GDP.
Many African and Arab nations are considered to be lesser-developed countries.
119. outsourcing- A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than
completing it internally. Outsourcing is an effective cost-saving strategy when used properly. It is sometimes more affordable to purchase
a good from companies with comparative advantages than it is to produce the good internally. An example of a manufacturing company
outsourcing would be Dell buying some of its computer components from another manufacturer in order to save on production costs.
Alternatively, businesses may decide to outsource book-keeping duties to independent accounting firms, as it may be cheaper than retaining
an in-house accountant.
120. trade agreements- A trade agreement signed between more than two sides (typically neighboring or in the same region) is classified as
multilateral. A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American
countries.
121. globalization- The tendency of investment funds and businesses to move beyond domestic and national markets to other markets around
the globe, thereby increasing the interconnectedness of different markets. Globalization has had the effect of markedly increasing not only
international trade, but also cultural exchange. The advantages and disadvantages of globalization have been heavily scrutinized and
debated in recent years. Proponents of globalization say that it helps developing nations "catch up" to industrialized nations much faster
through increased employment and technological advances. Critics of globalization say that it weakens national sovereignty and allows rich
nations to ship domestic jobs overseas where labor is much cheaper.
122. “cultural imperialism” –is defined as the cultural aspects of imperialism. Imperialism, here, is referring to the creation and maintenance
of unequal relationships between civilizations favoring the more powerful civilization.
123. demographics- Studies of a population based on factors such as age, race, sex, economic status, level of education, income level and
employment, among others. Demographics are used by governments, corporations and non-government organizations to learn more about a
population's characteristics for many purposes, including policy development and economic market research. Demographic trends are also
important, as the size of different demographic groups will change over time as a result of economic, cultural and political circumstances.
Segmenting a population into demographics allows companies to assess the size of a potential market and also to see whether its products
and services are reaching that company's most important consumers. For example, a company that sells high-end RVs would want to know
roughly how many people are at or nearing retirement age, and also what percentage of them will be able to afford the product. This
information will help the company to decide how much capital to allocate to production and advertising.
124. economic systems- is the combination of the various agencies, entities (or even sectors as described by some authors) that provide the
economic structure that defines the social community.