· Absolute advantage: When one region can out-produce another. 

· Accelerator principle: Investment is dependent on the growth in output. 

· Aggregate: A collective mass, a sum total.

· Aggregate Demand: The sum of the demand for all goods and services in the economy. It reflects the total amounts of real goods and services that all groups together want to purchase in a given time period. 

· Aggregate Supply: The relationship between the total quantity of final goods and services that suppliers are willing and able to produce and the overall price level. 

· Automatic stabilizers: Government programs already in effect (i.e., unemployment compensation, tax system) that don't eliminate but moderate fluctuations in the business cycle. 

· Autonomous (independent) investment: Investment not determined by the level of income. 

· Average-cost pricing: Setting price to cover average cost per unit including a fair return. 

· Average Fixed Cost (AFC): Total fixed cost divided by the number of units of output; a per unit measure of fixed costs. 

· Average product: The average amount produced by each unit of a variable factor of production. 

· Average propensity to consume: The percent of total income that is consumed.

· Average tax rate: Percentage of income paid as tax based on an amount of income. 

· Average Total Cost (ATC): Total cost divided by the number of units of output. 

· Average Variable Cost (AVC): Total variable cost divided by the number of units of output. 

· Balance of payments: A statement that records all of the exchanges that those in a nation engaged in that required an outflow of funds to foreign nations or an inflow of funds from other nations.

· Balance of trade: Value of exports minus imports. 

· Barrier to entry: Something that prevents new firms from entering and competing in an industry.

· Bond: A certificate of debt used by governments and corporations.   

· Boom: A prolonged expansion in economic activity. 

· Breaking even: The situation in which a firm is earning exactly a normal profit rate. 

· Budget constraint: The limits imposed on household choices by income, wealth, and product prices. 

· Budget deficit: What occurs when government spending exceeds tax revenue during a particular time period, usually a year. 

· Budget surplus: When tax revenues are greater than government spending during a particular time period. 

· Business cycles: Short-term fluctuations in the level of economic activity, relative to the long-term trends in output. 

· Capital: Human-made resources used to produce final goods (e.g. office buildings, tools, machines, and factories).

· Capital intensive: Relatively large use of capital goods in production.

· Cartel: A group of firms that gets together and makes joint price and output decisions in order to maximize joint profits. 

· Celler-Kefauver Act (1950): Extended the government's authority to ban mergers and prevented firms from acquiring the physical stock of competition. 

· Ceteris paribus: Literally, "all else equal." used to analyze the relationship between two variables while the values of other variables are held unchanged.

· Change in quantity demanded: the amount of a good that people are willing to buy at a given price. 

· Change in quantity supplied: the amount of a good that producers are willing to sell at a given price. 

· Circular flow model of income and output: A model that illustrates continuous flow of goods, services, and payments among businesses and households. 

· Clayton Act: Passed by Congress in 1914 to strengthen the Sherman Act and clarify the rule of reason, the act outlawed specific monopolistic behaviors such as tying contracts, price discrimination, and unlimited mergers.

· Coase Theorem: Defined property rights allow for an efficient allocation of resources.

· Collective bargaining: The process by which union leaders bargain with management as the representatives of all union employees. 

· Collusion: The act of working with other producers in an effort to limit competition and increase joint profits.

· Comparative advantage: A condition in which a person, a region, or a country can produce a good or service at a lower opportunity cost than others. 

· Complementary goods: Things that go together and are often consumed and used simultaneously. 

· Consent decrees: Formal agreements on remedies between all the parties to an antitrust case that must be approved by the courts. Consent decrees can be signed before, during, or after a trial. 
 

· Constraint: A limitation.

· Consumer Price Index (CPI): The standard measure of inflation; provides a measure of the trend in the prices of certain goods and services purchased for consumption. 

· Consumer sovereignty: The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase). 

· Consumer surplus: The net benefit to consumers of buying a good. 

· Consumption: Buying goods for personal use or using up goods.

· Consumption goods: Goods we consume that bring us immediate satisfaction, like food and clothing. 

· Consumption tax: Impact of taxing consumption rather than income. 

· Contraction: Getting smaller; an economy that has a smaller GDP than the previous period has suffered a contraction.

· Corporate bonds: Promissory notes issued by corporations when they borrow money. 

· Corporate income taxes: Taxes levied on the net incomes of corporations. 

· Corporate profits: The income of corporate businesses. 

· Corporation: A form of business organization resting on a legal charter that establishes the corporation as an entity separate from its owners. Owners hold shares and are liable for the firm's debts only up to the limit of their investment, or share, in the firm.

· Cost: What we give up for something.  Costs can take many forms.

· Cost-benefit analysis: The formal technique by which the benefits of a public project are weighed against its costs. 

· Cost-Push Inflation: Inflation caused by a leftward shift in the short-run aggregate supply curve.
 

· Credit unions: Cooperatives that perform banking functions.

· Cross-price elasticity of demand: a measure of the response of the quantity of one good demanded to a change in the price of another good. 

· Cross section: Data in one time period. 

· Crowding out effect: The theory that as the government borrows to pay for the deficit, it drives up the interest rates and crowds out private spending and investment. 

· Currency: Coins and /or paper that some institution or government has created to be used in the trading of goods and services and the payment of debts. 

· Cyclical unemployment: Unemployment due to a drop in the demand for labor caused by a recession. 

· Deadweight loss: Loss incurred because a market is not operating at its market clearing price.

· Decision: Selection between alternatives. 

· Decreasing returns to scale, or diseconomies of scale: An increase in the firm's scale of production lease to higher average costs per unit produced. 

· Deflation: A decrease in the overall price level of goods and services in the economy. 

· Demand curve: A schedule or graph (illustrated numerically or graphically) showing how much of a given product a household would be willing to buy at different prices. 

· Demand deposits: Non-interest earning in checking deposits. 

· Demand-Pull Inflation: A price level increase resulting in an increase in aggregate demand. 

· Depreciation: Annual allowance set aside for the replacement of worn out plant, property and equipment. 

· Depression: Severe and long recession.

· Derived demand: The demand for resources (inputs) that is dependent on the demand for the outputs those resources can be used to produce. 

· Direct relationship: Variables move in the same direction.

· Direct tax: Tax on a particular person (i.e., income tax, social security tax).

· Discount rate: The interest rate that the Fed charges commercial banks.

· Discouraged worker: Individuals who give up looking for a job because they believe they will not find a suitable one. 

· Disposable income: Individual income available after personal taxes.

· Dissave:  Reduction in existing savings often associated with a loss of income or wealth.

· Dividend: A share of profits received by a stockholder.

· Durable goods: Consumer goods that yield utility over time, such as stereos, automobiles, washing machines, etc.

· Economic growth: An upward trend in the real output of goods and services. 

· Economic profits, or excess profits: profits over and above the normal rate of return for an investment. 
 

· Economic rent: A return to the owner of a resource that exceeds the resource's opportunity cost.

· Economics: The study of the allocation of scarce resources to satisfy  unlimited wants for goods and services.

· Efficiency: Getting the most from a scarce resources based on what we want.

· Elastic demand: A demand relationship in which the percentage change in quantity demanded is larger in absolute value than the percentage change in price (a demand elasticity with an absolute value greater than 1). 

· Elasticity: A general concept than can be used to quantify the response in one variable when another variable changes. 

· Elasticity of supply: A measure of the relationship of quantity of a good supplied to a change in price of that good. Likely to be positive in output markets.

· Entitlements: Programs that pay benefits based of eligibility requirements rather than being based on a budgeted amount. 

· Entrepreneur: Decision maker who decides how to combine land, labor, and capital together, which goods or services to produce, how many to produce, and so on.

· Entrepreneurship: Decision-making input that is concerned with the application of resources and with identifying new possibilities, new products, and new methods of production. 

· Equilibrium: The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change. In the macroeconomic goods market, equilibrium occurs when planned aggregate expenditure is equal to aggregate output. 

· Equilibrium price: The price at which quantity demanded equals the quantity supplied.

· Equilibrium quantity: The quantity bought and sold at the equilibrium price. 
 

· Equity: Value of ownership.  Stocks are often referred to as equities.

· Excess demand: Quantity demanded is greater than quantity supplied at a particular price (price below equilibrium). 

· Excess reserves: The actual reserves of a bank minus its required reserves.

· Excess supply: Quantity supplied is greater than quantity demanded at a certain price (price above equilibrium). 

· Exchange rate: The price in one country's currency of one unit of another country's currency.
 

· Expansion: Economic growth; the growth portion of the business cycle.

· Expenditure multiplier: An impact from an autonomous injection or leakage into the economy; the size depends on how much of any change in income is spent by recipients. 
 

· Explicit cost: An obvious or easily measured cost, sometimes called out-of pocket costs.

· Externality: Occurs when there are physical impacts (benefits or costs) of an activity on individuals not directly involved in the activity. 

· Factor market: A market where the factors of production (e.g. land, labor, and capital) are bought and sold. 

· Fallacy of composition: Even if something is true for an individual, it is not necessarily true for many individuals as a group. 

· Federal funds market: A market in which banks that provide cash for other banks who have short-term needs for cash to meet reserve requirements. 

· Federal Open Market Committee: Makes monetary policy in the US; directs the buying and selling of government securities. 

· Federal Reserve: The central bank of the United States. 

· Fiscal Policy: Economic policy that relates to using expenditures and revenues of the government to alter GDP and price levels. 

· Flat tax: A tax designed so that everyone is charged the same percentage of income above some certain stipulated income level.

· Free rider: A person or entity that reaps benefits without paying all the cost. 

· Frictional unemployment: Unemployment resulting from constant changes in the economy that makes it difficult to match qualified unemployed workers with current job openings. 

· GDP deflator: A price index that helps to measure the average level of prices of all consumer goods and services produced in the economy. 

· Goods: Objects that can be seen, held, heard, tasted, or smelled.

· Gross Domestic Product (GDP): The value of all final goods and services produced within a country during a given period of time. 

· Human capital: People used as resources in production.

· Import quota: The maximum number of units of a good that can be imported within any given time span.

· Incentives: The motivation behind most choices. 

· Income: Revenues and earnings. 

· Indexing: The process of adjusting payment contracts to automatically adjust for changes in inflation. 

· Indirect tax: Tax on goods. (i.e., sales tax, excise tax, property tax). 

· Inelastic demand: The portion of a demand function where the percentage change in quantity demanded is less than the percentage change in price.

· Inferior goods: Goods for which rising income leads to reduced demand.

· Inflation: A situation in which the overall price level is rising, resulting in a fall of the purchasing power of money. 
 

· Intangible goods: Value that is held in a good that is not physical, such as goodwill or notoriety.

· Interest rate: the price of borrowed funds. 

· Investment: Refers to the creation of capital goods. 

· Labor: Resource that includes the total of physical and mental effort expended by people in the economy. 

· Labor force: The number of people over the age of 16 who are willing and able to find work; either employed or unemployed. 

· Labor intensive: Production that uses a relatively high level of labor input.

· Land: Resource that includes all natural resources coming from the earth (e.g. trees, animals, water, and minerals), as well as physical space.

· Law of Demand: The quantity of a good or service demanded varies inversely with its price, ceteris paribus. Other things being equal, when the price of a good or service falls, the quantity demanded increases, and conversely, if the price of a good or service rises, the quantity demanded decreases. 

· Law of Supply: The quantity supplied will vary directly with the price of the good, other things being equal. 

· Leading economic indicators: An index of items put together to be predictive of the health of the economy in the near future. 

· Liquidity: A measure of how close something is to currency or money, which is the most "liquid" or easily spendable or tradeable.

· Long-run: When all costs are variable, something longer than the current production period. 

· M1: Narrow definition of money that includes currency, checkable deposits, and travelers' checks. 

· M2: Broader definition of money encompassing M1 plus savings accounts, time deposits, and money market mutual funds. 

· Macroeconomics: Branch of economics that deals with the total economy and looks at economic problems as they influence the whole of society.

· Marginal: Near the edge or the end; decisions are generally made at the margin.  Decisions made at the margin yield more accurate representation of utility. 

· Marginal Propensity to Consume (MPC): The additional consumption that results from an additional dollar of income. 

· Marginal Propensity to Save (MPS): The additional savings that results from an additional dollar of income. 

· Marginal tax rate: Percentage of income paid as tax based on an amount of income.

· Market: A set of rules or an arrangement for the negotiation of exchange between buyers and sellers. 

· Market demand: The horizontal summing of the demand curves of all in the market.

· Market economy: An economy that uses a decentralized decision-making process to determine what to produce. 

· Market supply curve: The horizontal summation of the supply curves for individual firms.

· Maximum: Highest point of curve. 

· Medicare: A federal health insurance plan for the elderly and other qualified individuals.

· Medium of exchange: What we use in exchange for goods and services.

· Microeconomics: Branch of economics that deals with the smaller units within the economy, attempting to understand the decision-making behavior of firms and households and their interaction in markets for particular goods and services. 

· Minimum wage: Standard wage set by the federal government. 

· Monetary policy: The use of money and credit controls to influence macroeconomic activity.

· Money: Anything that is generally accepted in exchange for goods or services; a medium of exchange, standard of value, and store of value. 

· Money market: The market where money demand and money supply determine the equilibrium interest rate.

· Money multiplier: The reciprocal of the reserve ratio. It is equal to 1 divided by the required reserve ratio.

· Money price: Nominal price or unadjusted for accuracy price.

· Moral suasion: Federal Reserve's indirect influence up on banks to follow a particular course of action.

· Multiplier effect: Chain reaction of additional income and purchases that results in a final increase in total purchases that is greater than the initial increase in purchases.

· Mutual interdependence: When the welfare of one entity is tied to another entity.

· Natural rate of unemployment: The sum of frictional unemployment and structural unemployment when they are at a maximum.

· Near money: Non-transaction deposits that are not money but that can be quickly converted into money. 

· Negative relationship: Two variables move in different directions.

· Net exports: Value of exports minus imports.

· Nominal interest rate: Interest rate not adjusted for inflation. 

· Nominal values: Values not corrected for inflation.

· Non-durable goods: Tangible consumer items that are typically consumed or used up in a relatively short period of time.

· Normal good: A good that is in greater demand as a result of higher income.
 

· Normative analysis: Subjective analysis.

· Open market operations: The purchase and sale of government securities by the Federal Reserve System.

· Opportunity cost: The highest valued fore gone opportunity resulting from a decision.

· Own-price: The price of a good or service.

· Partnership: A business where profit is divided among owners but it is not a corporation. 

· Per capita gross domestic product: Real output of goods and services per person.

· Permanent income hypothesis: Suggests we make consumption decisions based on what our income has been and what we expect it will be instead of what it is currently. 

· Personal Income (PI): Measures the amount of income received by individuals before they pay personal income taxes. 

· Phillips curve: A curve showing the relationship between the annual rate of increase in the price level and the unemployment rate. 

· Positive: Factual or objective. 

· Positive analysis: Objective analysis, without subjective valuation.

· Positive relationship: Variables move in the same direction.

· Poverty rate: Percentage of people within a country below a specified level of nominal income.

· Precautionary demand: An individual's inclination to hold money in case of emergency or other unexpected expenses. 

· Price: The amount of money one has to pay or receives for a good or service. 

· Price ceiling: Government-imposed maximum prices set for goods deemed important. 

· Price controls: Government policies forcing prices above or below what they would be in a market economy. 

· Price floor: Government-imposed minimum prices set for goods.

· Price index: A measurement that attempts to provide a measure of the trend in prices paid for a certain bundle of goods and services over time.

· Price level: The average level of all prices in the economy. 

· Producer surplus: The net benefit to sellers of selling a good. 

· Production Possibilities Curve (PPC): Shows the potential total output combinations of any two goods for an economy (what the producer is willing and able to produce).

· Productivity: Production per person.

· Profit: The primary long term goal of a business.  It is total revenue minus total cost and is figured annually though many companies report quarterly results. 

· Progressive tax: Tax designed so that those with higher incomes pay a greater proportion of their income in taxes. 

· Property rights: The broad powers individuals have to use, sell, rent, dispose of, or enhance the value of their goods. 

· Proportional tax: Tax designed so every individual pays the same percentage of their income in tax.

· Proprietorship: A business owned by one person.

· Public goods: Are non-rivalrous in consumption and use does not exclude other users.  Theses characteristics suggest these goods are (nearly) always provided by governments.

· Quantity Demanded: Part of demand that corresponds to a particular price and only changes if the price changes. 

· Real values: Values adjusted for inflation (i.e. real GDP or real interest rate). 

· Regressive tax: Tax that takes a greater proportion of the income of lower-income groups than higher-income groups 

· Relative price: The price of one good relative to others. 

· Required Reserve Ratio: Percentage of deposits that a bank must keep at the Federal Reserve Bank.

· Resources: Inputs like land, labor, and capital that are used to make goods and services.

· Revenue: Earnings or income. 

· Savings and loan associations: Cooperative associations organized to hold savings of members in the form of dividend-bearing shares and to invest chiefly in home mortgage loans. 

· Scarcity: The result that occurs when our wants exceed what our resources can produce.

· Seasonal unemployment: Unemployment that occurs because certain types of jobs are seasonal in nature. 

· Securities: Stocks and bonds.

· Self-interest: Motivation that causes people to improve their own situation.

· Services: Intangible times of value, such as education and health care, as opposed to physical goods. 

· Shocks: Unexpected aggregate supply or aggregate demand changes. 

· Shortage: A condition where the quantity demanded is greater than the quantity supplied, at the current price. 

· Short-run: Refers to a period when output can change in response to supply and demand, but input prices have not yet been able to adjust. 

· Slope: Rise over run. 

· Social costs: The full resource cost of an activity including the external cost.

· Specialization: Concentrating production in the hands of the most efficient producers. 

· Speculative demand: Tendency for people to keep cash on hand because of something they expect to happen or not happen. 

· Stagflation: Phenomenon caused when lower growth and higher prices occur together.

· Stock: A defined portion of ownership in a corporation.

· Structural unemployment: Reflects the existence of persons who lack the necessary skills for jobs that are available. 

· Substitute: A good that can replace another good. 

· Sunk costs: A cost that is already incurred.  These costs should generally be ignored when making a decision.

· Supply: What producers are willing and able to produce. 

· Supply shock: Disruption of availability of usage of resources; can shift AS.

· Surplus: A condition where the quantity supplied is greater than the quantity demanded at the current price. 

· Tangent: Equal slope of touching curves. 

· Tariff: A tax on imports (rarely on exports). 

· Tax credit: A direct deduction in the amount of taxes owed. 

· Tax deduction: Reduction in taxable income. 

· Tax multiplier: Indirect effect of taxes on expenditures through consumption.

· Time-series graph: A graph that shows changes over time. 

· Transaction costs: The costs of making exchanges or transactions in a market.

· Transactions demand: The tendency for individuals to keep cash on hand for the purposes of exchange. 

· Transfer payments: Transfer money from one income group to another.

· Travelers' checks: Transaction instruments that can be easily converted into currency.

· Underemployment: The case where a person or persons are employed but do not have full time jobs or the jobs do not require them to actually work full time when the person could. 

· Unemployment rate: Percent of the population over the age of 16 who are willing and able to work but are unable to obtain a job; calculated by dividing the number of people unemployed by the number in the labor force.

· Utility: An individual's tastes and preferences. 

· Variable: A quantity that can take on different numeric values. 

· Wage and price controls: A fiscal policy sometimes used to prevent inflation.  As a policy, it has a poor success rate.

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