Glossary Terms:

It's a Not So Wonderful Life

Glossary terms from:
http://www.econedlink.org/e698


Alternative

One of many choices or courses of action that might be taken in a given situation.

Bank

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

Banking

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

Borrow

To receive and use something belonging to somebody else, with the intention of returning or repaying it--often with interest in the case of borrowed money.

Borrower

An individual who has received and used something belonging to somebody else, with the intention of returning or repaying it--often with interest in the case of borrowed money.

Business

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

Cash

Money in the form of paper currency or coins (as distinct from checks, money orders or credit).

Check

A written order to a financial institution directing the financial institution to pay a stated amount of money, as instructed, from the customer's account.

Checking Account

A financial account into which people deposit money and from which they withdraw money by writing checks.

Competition

Attempts by two or more individuals or organizations to acquire the same goods, services, or productive and financial resources. Consumers compete with other consumers for goods and services. Producers compete with other producers for sales to consumers.

Costs

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

Credit

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

Currency

The money in circulation in any country.

Deposit

Money put into a financial account. Also, to place money in a financial account.

Discount Rate

The interest rate the Federal Reserve charges commercial banks for loans.

Economic Growth

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

Excess Reserves

A bank's cash reserves beyond the required reserves, which can be loaned.

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.

Firms

Economic units that demand productive resources from households and supply goods and services to households and government agencies.

Fractional Reserve Banking System

A system in which banks are required to hold only a specified fraction of their deposits available for withdrawal by depositors. The rest may be lent out, thus "creating money."

Goods

Tangible objects that satisfy economic wants.

Households

Individuals and family units that buy goods and services (as consumers) and sell or rent productive resources (as resource owners).

Incentive

Any reward or benefit, such as money, advantage or good feeling, that motivates people to do something.

Inflation

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

Interest

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

Interest Rate

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

Investment

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

Job

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

Lend

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

Liquidity

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

Market Economy

An economy that relies on a system of interdependent market prices to allocate goods, services, and productive resources and to coordinate the diverse plans of consumers and producers, all of them pursuing their own self-interest.

Markets

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

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.

Money

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.

Multiplier Effect

The idea that a small increase in spending by consumers, businesses or government can cause large changes in economic production. The multiplier also works in reverse when spending decreases.

Open Market Operations

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

Recession

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).

Required Reserves

The minimum amount of cash reserves (a percentage of the deposits) in dollars that a bank is required by law to keep on hand or with the Federal Reserve.

Reserve Requirements

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

Resources

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

Return

Earnings from an investment, usually expressed as an annual percentage.

Saving

Disposable income (income after taxes) minus consumption spending.

Services

Activities performed by people, firms or government agencies to satisfy economic wants.

Supply

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.

Wants

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

Work

Effort applied to achieve a purpose or result, often for pay; skills and knowledge put to use to get something done; employment at a job or in a position; occupation, profession, business, trade, craft, etc.