Glossary Terms:

Focus on Economic Data: The Federal Reserve and Monetary Policy, May 1, 2013

Glossary terms from:


Something of monetary value owned by an individual or an organization.

Balance Sheet

An itemized statement listing the total assets and total liabilities of a given business to portray its net worth at a given moment in time.


A financial institution that provides various products and services to its customers, including checking and savings accounts, loans and currency exchange.


The industry involved with conducting financial transactions. Also, conducting business with a bank, e.g., maintaining a checking or savings account or obtaining a loan.


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

Board of Governors

The Federal Reserve's governing and monetary policy-making body; consists of seven governors appointed by the President to staggered 14-year terms.


A spending-and-savings plan, based on estimated income and expenses for an individual or an organization, covering a specific time period.


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


People who use goods and services to satisfy their personal needs and not for resale or in the production of other goods and services.


An amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain something.


The opportunity to borrow money or to receive goods or services in return for a promise to pay later.


Money owed to someone else. Also the state or condition of owing money. Can be individual, corporate or government debt.


A conclusion reached after considering alternatives and their results.


A sustained decrease in the average price level of all the goods and services produced in the economy.

Economic Growth

An increase in real output as measured by real GDP or per capita real GDP.


The study of how people, firms and societies choose to allocate scarce resources with alternative uses.

Federal Reserve

The central bank of the United States. Its main function is controlling the money supply through monetary policy. The Federal Reserve System divides the country into 12 districts, each with its own Federal Reserve bank. Each district bank is directed by its nine-person board of directors. The Board of Governors, which is made up of seven members appointed by the President and confirmed by the Senate to 14-year terms, directs the nation's monetary policy and the overall activities of the Federal Reserve. The Federal Open Market Committee is the official policy-making body; it is made up of the members of the Board of Governors and five of the district bank presidents.

Fiscal Policy

Changes in the expenditures or tax revenues of the federal government, undertaken to promote full employment, price stability and reasonable rates of economic growth.

Full Employment

The natural rate of employment; generally considered to be about 93-95 percent of the labor force, allowing for frictional unemployment of 5-7 percent.


Something a person or organization plans to achieve in the future; an aim or desired result.


Accommodation in houses, apartments, etc.


A rise in the general or average price level of all the goods and services produced in an economy. Can be caused by pressure from the demand side of the market (demand-pull inflation) or pressure from the supply side of the market (cost-push inflation).


Money paid regularly, at a particular rate, for the use of borrowed money.

Interest Rate

The price paid for using someone else's money, expressed as a percentage of the amount borrowed.


The purchase of capital goods (including machinery, technology or new buildings) that are used to produce goods and services. In personal finance, the amount of money invested in stocks, bonds, mutual funds and other investment instruments.


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


The quantity and quality of human effort available to produce goods and services.

Labor Market

The labor supply and labor demand curves. The intersection of the labor supply and labor demand curves determines the equilibrium wage and the quantity of hours people work at this equilibrium wage.


To grant someone the use of something, on condition that the object borrowed or its equivalent will be returned (often with interest, in the case of money).


The ease with which savings or investments can be turned into cash.


Places, institutions or technological arrangements where or by means of which goods or services are exchanged. Also, the set of all sale and purchase transactions that affect the price of some good or service.

Monetary Policy

Changes in the supply of money and the availability of credit initiated by a nation's central bank to promote price stability, full employment and reasonable rates of economic growth.


Anything that is generally accepted as final payment for goods and services; serves as a medium of exchange, a store of value and a standard of value. Characteristics of money are portability, stability in value, uniformity, durability and acceptance.

Money Supply

Narrowly defined by economists as currency in the hands of the public plus checking-type deposits; also called M1. Other definitions of the money supply (M2, M3) include various savings deposits, money market deposits and money market mutual fund balances.


A special type of loan for the purchase of a house or other real estate.

Open Market Operations

The buying and selling of government bonds by the Federal Reserve to control bank reserves and the money supply.



A person's or an institution's collection of savings and investments.


The amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or service.

Price Level

The weighted average of the prices of all goods and services in an economy; used to calculate inflation.

Price Stability

The absence of inflation or deflation; a broad social goal and criterion for measuring the performance of an economic system.


An original amount of money invested or lent.


People and firms that use resources to make goods and services.


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


A process of manufacturing, growing, designing, or otherwise using productive resources to create goods or services used to to satisfy a want.


In a credit arrangement, the total amount spent during the billing cycle.

Purchasing Power

The amount of goods and services that a monetary unit of income can buy.


A decline in the rate of national economic activity, usually measured by a decline in real GDP for at least two consecutive quarters (i.e., six months).

Reserve Requirements

The fraction of banks' deposits that they are required by law to keep on hand or with the Federal Reserve.


The basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.


The chance of losing money.


The amount of a good or service that producers are willing and able to offer for sale at each possible price during a given period of time. Normally, as the price of a good or service rises (or falls), the quantity supplied of the good or service rises (or falls).


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



The number of people without jobs who are actively seeking work.

Unemployment Rate

The number of unemployed people, expressed as a percentage of the labor force.


Desires that can be satisfied by consuming or using a good or service. Economists do not differentiate between wants and needs.