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ECONOMIC GLOSSARY

Ability-to-Pay Principle The belief that people should be taxed according to their ability to pay, regardless of the benefits they receive. The U.S. individual income tax is based on this principle. Absolute Advantage The ability to produce more units of a good or service than some other producer, using the same quantity of resources. Accounting Loss Total explicit costs are greater than total explicit revenue which results in a loss. Accounting Profit Total revenue less total costs except for the opportunity cost of capital. Adaptive Expectations Expectations about inflation or other economic events. Add-On Rate A method of calculating interest on a loan, based on the assumption that the borrower holds the original principal for the entire loan period. Adjusted Balance Method A method of calculating finance charges by basing them on the opening balance owed after subtracting the payments made during the month. Advertising Using advertisements (public notices, displays or presentations often based on celebrity endorsements, appeals to authority, bandwagon effects and attractive imagery) to promote the sale of goods or services. Aggregate Demand (AD) A schedule (or graph) that shows the value of output (real GDP) that would be demanded at different price levels. Aggregate Supply (AS) A schedule (or graph) that shows the value of output (real GDP) that would be produced at different price levels. In the long run, the schedule shows a constant level of real GDP at all price levels, determined by the economy's productive capacity at full employment. In the short run, the aggregate supply schedule may show different levels of real GDP as the price level changes. Allocative Efficiency Taking advantage of every opportunity to make some individuals better off in their own estimation while not worsening the condition of anyone else.

Allowance A sum of money paid regularly to a person, often by a parent to a child; sometimes paid in compensation for services rendered. Alternative One of many choices or courses of action that might be taken in a given situation. Amount Past Due In a credit arrangement, the amount of money owed and not repaid on time. Annual Fee The yearly charge for having a credit card or credit account. Annual Percentage Rate (APR) The percentage of the principal of a loan to be paid as interest in one year. Differs from an add-on rate in that an APR is calculated on the declining balance of the loan. The Truth in Lending Act requires lenders to disclose APRs to prospective borrowers. Annual Percentage Yield Income earned on an investment in a year, divided by the amount of the original investment. Annual Rate of Return Income earned on an investment in a year, divided by the amount of the original investment. Asian Financial Crisis The situation that began in 1997-1998 when investors withdrew large amounts of money from several Asian countries due to fears that assets were overpriced. This led to currency devaluations and set off a panic resulting in runs on banks, plummeting stock prices, business failures and loss of jobs. Some of the countries involved were Thailand, South Korea, Indonesia and Malaysia. Asset Something of monetary value owned by an individual or an organization. Assumptions Beliefs or statements presupposed to be true. Automated Teller Machine (ATM) A machine that provides cash and performs banking services (for deposits and transfers of funds between accounts, for example) automatically when accessed by customers using plastic cards coded with personal identification numbers (PINs). Average Daily Balance Method A method of calculating finance charges based on the average amount owed for each day of the billing cycle. Average Fixed Cost (AFC) Total fixed costs divided by the amount produced.

Average Revenue (AR) Total revenue divided by the amount produced. Average Variable Cost (AVC) Total variable costs divided by the quantity produced.

B Bait and Switch
The action (generally illegal) of advertising goods that are an apparent bargain (the bait) with the intention of inducing customers to buy more expensive items (the switch), on the pretext that the advertised item is no longer available. Balance of Payments The record of all transactions (in goods, services, physical and financial assets) between individuals, firms and governments of one country with those in all other countries in a given year, expressed in monetary terms. Balance of Payments Deficit An imbalance in a nation's balance of payments where more currency is flowing out of the country than is flowing in. This unequal flow of currency is considered unfavorable and can lead to a loss of foreign currency reserves. Balance of Payments Surplus An imbalance in a nation's balance of payments in which more currency is flowing into the country than is flowing out. This unequal flow of currency is considered favorable and can lead to an increase in foreign currency reserves. Balance of Trade The part of a nation's balance of payments accounts that deals only with its imports and exports of goods and services. The balance of trade is divided into the balance on goods (merchandise) and the balance on services. If the value of a country's exports of goods and services is greater than its imports, it has a balance of trade surplus. If the value of a country's imports of goods and services is greater than its exports, it has a balance of trade deficit. 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. Balanced Budget A financial plan in which income is equal to expenses. Bank A financial institution that provides various products and services to its customers, including checking and savings accounts, loans and currency exchange. Bank Account

An arrangement by which a bank holds funds on behalf of a depositor. Also, the balance of funds held under such an arrangement, credited to and subject to withdrawal by the depositor. Bank Reserves The percentage of a bank's deposits that it keeps on hand, i.e., does not lend out. Bank Service Charges Fees paid by bank customers for financial services, for example, check-cashing fees, fees for overdrafts from accounts, fees for using the ATMs of other banks and fees for using bank-issued credit cards. Bank Statement A monthly summary providing the status of a depositor's financial accounts (checking and/or savings). 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. Barriers to Entry Factors that restrict entry into an industry and give cost advantages to existing firms. Examples would include the large size of existing firms, control over an essential resource or information, and legal rights such as patents and licenses. Barriers to Trade Restrictions on trade such as tariffs, quotas and regulations. Barter Trading a good or service directly for another good or service, without using money or credit. Benefit Monetary or non-monetary gain received because of an action taken or a decision made. Benefits-Received Principle The belief that people should be taxed according to the benefits they receive from the good or service the tax supports. The gasoline tax is an example. Blue Chip Stocks Stocks in large, nationally known companies that have been profitable for a long time and are well-known and trusted. 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. Bond

A certificate of indebtedness issued by a government or a publicly held corporation, promising to repay borrowed money to the lender at a fixed rate of interest and at a specified time. 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. Brand A trade name used to identify a product produced by a particular company, distinguishing it from similar products produced by competitors. Budget A spending-and-savings plan, based on estimated income and expenses for an individual or an organization, covering a specific time period. Budget Deficit Refers to national budgets; occurs when government spending is greater than government income in a given year. A yearly deficit adds to the public debt. Budget Surplus Refers to national budgets; occurs when government income is greater than government spending in a given year. Business Any activity or organization that produces or exchanges goods or services for a profit. Business Cycles Fluctuations in the overall rate of national economic activity with alternating periods of expansion and contraction; these vary in duration and degrees of severity; usually measured by real gross domestic product (GDP). Business Plan A description of an enterprise including its name, its goals and objectives, the product(s) sold and distributed, the work skills needed to produce those products, and the marketing strategies used to promote them. Businesses and Households Two sectors of the circular flow. Businesses hire resources from households; the payments for these resources represent household income. Households spend their income for goods and services produced by the businesses; household spending represents revenue for businesses.

C

High earnings and low debt. i. Cash Advance In a credit arrangement. In the context of credit transactions. Capital Account Balance Foreign government and private investment in the United States netted against similar U. indicate a strong capacity to make payments on the loan in question. examples include tools. capacity is one of the Three Cs of Credit.. the remaining balance. . the amount charged to a borrower's account for cash received. also records capital inflows. i.S. Cash Money in the form of paper currency or coins (as distinct from checks.e.Capacity In the context of credit transactions. expenditures by residents of foreign nations to purchase physical capital and financial assets from residents of the nation in question. the difference between the cash-advance limit and withdrawals made (advances issued). Capital Gain A profit realized from the sale of property. expenditures made by the nation's residents to purchase physical capital and financial assets from the residents of foreign nations. money orders or credit). machinery. stocks or other investments. stocks or other investments for less money than the purchase price of the asset in question. Cash Available In a credit arrangement. investment in foreign countries.. as determined by the borrower's current and future earnings relative to current debt. It is an indicator of how creditworthy a prospective borrower is likely to be as determined by the borrower's current financial assets and net worth. It is an indicator of how creditworthy a prospective borrower is likely to be. machinery and buildings. Capital Resources and goods made and used to produce other goods and services. for example. an instant loan. Capital Account Part of a nation's balance of payments accounts. records capital outflows.e. Capital Loss A loss suffered upon the sale of property. capital is one of the Three Cs of Credit. Capital Resources Resources made and used to produce and distribute goods and services. Examples include buildings. tools and equipment.

a rise in production costs can also lead to a rise in inflation. from the customer's account. character is one of the Three Cs of Credit. Check A written order to a financial institution directing the financial institution to pay a stated amount of money. Choice Decision made or course of action taken when faced with a set of alternatives. as instructed. and the ability to regulate the amount of money in a market by making it uncounterfeitable.Cash-Advance Limit In a credit arrangement. the maximum amount that can be issued for a cash advance. International lending and federal taxes can also be causes of inflation. Check Register A form (usually located in the back of a checkbook) on which users of checking accounts may record checks they have written and deposits they have made. Certificate of Deposit (CD) A certificate issued by a bank to a person depositing money in an account for a specified period of time (often six months. Circular Flow The movement of output and income from one sector of the economy to another. Characteristics of Money Characteristics of money include it being durable (both physically and socially). Additionally. A penalty is charged for early withdrawal from CD accounts. It is an indicator of how creditworthy a prospective borrower is likely to be. Information thus recorded helps people keep track of balances in their accounts. as determined by the borrower's handling of past debts and his or her stability in jobs and residences. often illustrated as a circular flow diagram. . Central Banking System A nation's central bank that is established to regulate the money supply and oversee the nation's banks. transportable (literally meaning that money must be easy to move). In the United States the Federal Reserve is the central bank. Character In the context of credit transactions. one year or two years). Checking Account A financial account into which people deposit money and from which they withdraw money by writing checks. while war is also a leading cause of inflation as well. Causes of Inflation Too much money chasing too few goods is common cause for inflation. divisible (money can be divided into increments appropriate for the cost of an item).

that tend to change at the same time that real output changes. Collusion A secret agreement between firms to fix prices or engage in other activities to restrict competition in an industry. but not always. Communities and Cities A community can be considered a social group which retains an environment. an economic system based on a classless society. In practice.Coincident Indicators Economic variables. and manufacturing and trade sales. Collateral Something of value (often a house or a car) pledged by a borrower as security for a loan. A city can be considered a financial and commercial center. contracts for the sale and delivery of commodities at some future time. Communism In theory. the complete disappearance of government and income allocated according to need. Coins Government-issued pieces of metal that have value and are used as money. proceeds from the sale may then be used to pay down the unpaid debt. This is the economic basis for specialization and trade. while sharing interest in economic progress. industrial production. usually. communism usually refers to the command economic system in existence in the former Soviet Union before its downfall in 1990-1991. If the borrower fails to make payments on the loan. illegal in the United States. Command Economy An economy in which most economic issues of production and distribution are resolved through central planning and control. the collateral may be sold. Commodities Market The market for the purchase and sale of commodity (a basic product. Comparative Advantage The ability to produce a good or service at a lower opportunity cost than some other producer. such as payroll employment. if the automobile is hit by another car. Collision Insurance Coverage Insurance that pays for repairs to an automobile. Comparison Shopping . agricultural or mineral) futures. personal income. and in other countries such as China and Cuba. common ownership of all resources. or replacement of the automobile (minus the deductible in each case).

size. Comprehensive Insurance Coverage Insurance that pays for repairs to an automobile.Examining different brands or models of a product (to learn about variations in quality. he or she will earn $160 in interest after one year. or the prices charged by different sellers (to learn about possible cost-savings). The longer the money is left in the account.160.000 deposit. Complementary Goods and Services Goods and/or services that are typically used together. if someone deposits $2. services. Complements Goods and/or services that are often consumed together.160.. Consequence A result or effect of an action or decision. Consumers compete with other consumers for goods and services.000 in an account that pays interest at 8 percent.g. if the automobile is stolen or damaged by something other than a collision (for example. Compounding Paying interest on the principal and on interest already earned.). the more dramatic the compounding effect. Consumer Economics The study of economics that addresses decisions of consumers in the marketplace and personal money management. Competition Attempts by two or more individuals or organizations to acquire the same goods. Consume To buy and use a good or service.80 in interest because the 8 percent rate will apply to the new balance of $2. Concentration Ratio The percentage of the total industry by the largest firms (generally four or eight) in an industry. or productive and financial resources. or tennis rackets and tennis lessons. For example. he or she will earn $172. such as hamburger and hamburger buns. or replacement of an automobile (minus the deductible in each case). for a balance of $2. left and right socks. however. Producers compete with other producers for sales to consumers. The concentration ratio provides a measure of domination in an industry by a few firms and serves as a measure of whether an industry is an oligopoly. by a hail storm). before deciding what to buy. or tennis rackets and tennis lessons. e. not the original $2. . may be positive or negative. Compound Interest Interest that is earned not only on the principal but also on the interest already earned. If the depositor leaves this sum in the account for another year. etc.

loss or sacrifice necessary to achieve or obtain something. Consumer Surplus The difference between the price a consumer would be willing to pay for a good or service and the price that consumer actually has to pay. Cost-Push Inflation Inflation caused by rising costs of production. Consumption Spending by households on goods and services. Contractionary Fiscal Policy A decrease in government spending and/or an increase in taxes designed to decrease aggregate demand in the economy and control inflation. Credit The opportunity to borrow money or to receive goods or services in return for a promise to pay later. labor. Cost/Benefit Analysis A process of examining the advantages (benefits) and disadvantages (costs) of each available alternative in arriving at a decision. Council of Economic Advisers A three-member group that gathers information on the economy. reports on economic developments and recommends strategies to the President. The process of buying and using goods and services. The effort. Consumers People who use goods and services to satisfy their personal needs and not for resale or in the production of other goods and services. Credit Agreement A written promise to repay something that is borrowed.Consumer Price Index (CPI) A price index that measures the cost of a fixed basket of consumer goods and services and compares the cost of this basket in one time period with its cost in some base period. Changes in the CPI are used to measure inflation. capital and entrepreneurship) used to produce goods and services. Costs An amount that must be paid or spent to buy or obtain something. Costs of Production Amounts paid for resources (land. Corporation A legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own. .

Credit Rating An evaluation of a borrower's ability to repay a loan based on his or her character. loan fees. Credit Union A nonprofit financial institution owned by its members.Credit Application A request for a loan. based on how reliably he or she has repaid debts in the past.. annual or monthly fees on a credit account). authorizing the cardholder to purchase goods or services on credit. Creditworthiness . specially coded plastic card issued by a bank. offers various financial services including accounts and loans. submitted to a lender (for example. business. Also known as a credit report. Creditor A person or company to whom money is owed. payments. regulated by the National Credit Union Association (NCUA). etc. Credit Report A report about a person's credit history. a bank or a credit union) by a prospective borrower. Credit History A record of past borrowing and repayments. Also known as a credit record. balance due and fees. The credit application provides background information which the lender uses to assess the prospective borrower's creditworthiness--his or her ability to repay the loan. Credit Costs Charges associated with the acceptance of a loan. Credit Card A small. capacity and capital. Credit Record A report about a person's credit history. including his or her ability and willingness to repay debts. Credit Limit The maximum amount of money that will be extended to a person by a financial institution or credit-card issuer. Credit-Card Statement A monthly summary from a credit-card company conveying information about a cardholder's purchases. including his or her ability and willingness to repay debts. based on how reliably he or she has repaid debts in the past. including the finance charge and transaction fees (for example.

everything else held constant. investment income and transfer accounts into the United States from foreign countries netted against the outflow of goods. Currency Board A government organization existing in a few countries that establishes a fixed exchange rate for the nation's currency. the goods are substitutes. Debt for Individual . records exports and imports of goods and services. Current Account Part of a nation's balance of payments accounts. Cyclical Unemployment Unemployment caused by fluctuations in the overall rate of economic activity or phase of the business cycle. investment income and transfer accounts from the United States to foreign countries. allows the cardholder to transfer funds electronically and immediately from his or her checking account. Current Account Balance The inflow of the goods. D Debit Card A small. net investment income and transfer payments with other countries. When the cross-price elasticity of demand is positive. It measures the degree to which goods are substitutes or complements. the goods are complements. specially coded plastic card issued by a bank. Can be individual. Currency Devaluation When a government adjusts the value of the nation's currency so that it buys less of foreign currencies than before. Crowding-Out Increased interest rates and decreased private investment caused by government borrowing. as if the cardholder were writing a check to pay for a purchase. when the cross-price elasticity of demand is negative. services.The extent to which a person is deemed suitable to receive credit. corporate or government debt. services. Cross-Price Elasticity of Demand The percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good. Currency The money in circulation in any country. Debt Money owed to someone else. especially as shown by reliability in repaying loans in the past. Also the state or condition of owing money.

Also. Depreciation of Currency A decline in the price of one currency relative to another. Decision A conclusion reached after considering alternatives and their results. Examples include misleading prices. Definition of Money A medium of exchange which can be conveniently circulated and is seen as an effective form of currency. Deceptive Practices Misleading methods used by businesses to sell goods or services. Depression A severe. Decision-Making Grid A graph-like form into which people may enter notations about the costs and benefits of various alternatives. prolonged economic contraction. Demand Deposit An account from which funds may be withdrawn by writing a check at any time and without having to obtain the approval of the financial institution in advance. Deductible Regarding insurance policies: A set amount an insured person must pay per loss before the insurance company will pay a claim. Demand-Pull Inflation Inflation caused by increasing demand for output or "too much money chasing too few goods. Decision Making Reaching a conclusion after considering alternatives and their results. . Deflation A sustained decrease in the average price level of all the goods and services produced in the economy. used for assistance in making decisions." Deposit Money put into a financial account. to place money in a financial account. Depreciation A reduction in the value of capital goods over time due to their use in production. bait-and-switch tactics and false advertising. Demand The quantity of a good or service that buyers are willing and able to buy at all possible prices during a period of time.Money a person owes to someone else. usually a financial institution.

Distribution of Income The way in which the nation's income is divided among families. Disposable Income The amount of money a person has left to save or spend after income taxes. number of consumers. Social Security taxes and other required deductions have been taken out of his or her pay. Direct Relationship The relationship that exists when the values of related variables move in the same direction. causing consumers to buy more or less at every price. Disincentive A factor. Distribution The allocation or dividing up of the goods and services a society produces. causing producers to supply more or less at every price. Discouraged Workers Unemployed people who have given up looking for work and are therefore not counted as part of the labor force. Determinants of Supply Factors other than the price of a good or service that change (shift) the supply schedule. not demand for the good or service itself. preferences and prices of related goods. for example) directly from the payer's account to the recipient's account. Determinants of Demand Factors other than the price of a good or service that change (shift) the demand schedule. Direct Deposit The electronic transfer of a payment (for a month's salary. often a monetary policy or disadvantage.Derived Demand Demand resulting from what a good or service can produce. Diversify . and technology and productivity. Diminishing Marginal Utility A widely observed relationship in which the additional satisfaction (marginal utility) associated with consuming additional units of the same product in a given amount of time eventually declines. Factors include income. that discourages people from doing something. individuals or other designated groups. production costs. Discount Rate The interest rate the Federal Reserve charges commercial banks for loans. Factors include number of producers. Also known as a positive relationship.

To invest in a variety of stocks. the freedom of individuals to establish businesses and to decide what to produce and when to change their pattern of production. tips. Easy-Money Policy Monetary policy designed to stimulate the economy by increasing the level of bank reserves through lowering the discount rate. lowering reserve requirements or buying securities through open market operations. commissions. bonds. wages. the freedom of workers to choose to change jobs. Economic Freedom The freedoms of the marketplace--the freedom of consumers to decide how they wish to allocate their spending among various goods and services. Division of Labor An arrangement in which workers perform only one step or a few steps in a larger production process (as when working on an assembly line). Dividend A share of a company's net profits paid to stockholders. which is concerned with yearto-year increases in production. social and political institutions that govern the way the economy and society function. Economic development is broader than economic growth. may include salary. respond to market . Economic Efficiency A situation in which no one in a society can be made better off without making someone else worse off. and the freedom of savers to decide when and where to invest their savings. Economic Equity The application of our concepts of what is "fair" or "unfair" and what is "right" or "wrong" to an economic policy. join unions and go on strike. promote competition. Economic Functions of Government In a market economy. E Earned Income Money received for work performed. government agencies establish and maintain a legal system to regulate both commercial and social behavior. Economic development deals with the economic. money market accounts.. Economic Development The process of improving the quality of human lives through raising living standards. in order to spread risk. Ultimately deals with the distribution of income and wealth. professional fees. etc. Durable Goods Goods intended to last for a period of more than three years. etc.

including opportunity costs. customary ways of doing things such as the use of money. governments must shift resources from private uses by taxing and/or borrowing. . including firms and government agencies.failures by providing public goods and adjusting for externalities. formal organizations such as corporations. accidents on the job. the portion of a resource's earnings that is not necessary to keep the resource in its present use. over which people have little or no control. such as unemployment. firms and societies choose to allocate scarce resources with alternative uses. Economics The study of how people. banks. Economic Wants Desires that can be satisfied by consuming a good or service. Economic Institutions Organizations such as households and families. and controlling values and beliefs. Economic Growth An increase in real output as measured by real GDP or per capita real GDP. business failures or natural disasters. earnings in excess of the earnings required to keep a resource in its current use. how to produce and how to distribute goods and services. collective bargaining and the observance of certain holidays. To perform these functions. Economic Incentives Factors that motivate and influence the behavior of individuals and organizations. Economic Profit A firm's total revenue minus all explicit and implicit costs of production. redistribute income and establish macroeconomic stabilization policies. Economic Security Protection against economic risks. Economic Way of Thinking A reasoning process that involves considering costs as well as benefits in making decisions. a system of law. Prices. labor unions and cooperatives. government agencies. Economic Rent Payment for the use of something that is in fixed or perfectly inelastic supply. Economists do not differentiate between wants and needs. profits and losses are important economic incentives in a market economy. Economic Systems The institutional framework of formal and informal rules that a society uses to determine what to produce. Economic Loss Total revenue is less than total costs when total costs include all opportunity costs.

also called the market-clearing price. Generally. religion. Entrepreneurship A characteristic of people who assume the risk of organizing productive resources to produce goods and services. a relative response of a change in quantity demanded to a relative change in price. There are three types of endorsement. or age. race. Blank endorsement: The signature makes the check as good as cash to anybody who holds it. such as "for deposit only" to a checking or savings account. Equity . Restrictive endorsement: The signature tags the check for a specific purpose. Equilibrium Quantity The quantity demanded and quantity supplied at the equilibrium or market-clearing price.Economizing Behavior Considering the costs and benefits of various alternatives and choosing the one with the greatest net benefits. Elasticity of Demand Price elasticity of demand is the percentage change in quantity demanded as a result of the percentage change in demand price. Employment Rate The percentage of the total population aged 16 or over that is employed. or because an applicant receives public assistance. Equilibrium Price The price at which the quantity demanded by buyers equals the quantity supplied by sellers. Endorsement A signature on the back of a check instructing the bank as to how the check may be cashed. Often a risk-taker. Special endorsement: The signature allows the holder to transfer the check to another person. Electronic Funds Transfer Act A federal law providing consumer protection for people who use ATMs and debit cards. marital status. Equal Credit Opportunity Act A federal law that prevents lenders from denying credit on the basis of an applicant's sex. a resource. national origin. Entrepreneur One who draws upon his or her skills and initiative to launch a new business venture with the aim of making a profit. inclined to see opportunity when others do not. The law limits users' liability for unauthorized charges made on cards that have been lost or stolen.

F Factor Endowments The theory that differences in factor endowments among countries result in different opportunity costs. the value of mortgaged property after accounting for charges against it or money owed. European Union (EU) An association of European nations created by the Maastricht Treaty signed in 1992. Expansionary Fiscal Policy An increase in government spending and/or a decrease in taxes designed to increase aggregate demand in the economy. labor and entrepreneurship. Expenses Payments for goods and services. in which some of the benefits or costs associated with the production or consumption of a product affect someone other than the direct producer or consumer of the product. Factor Prices The prices of land. Exchange Trading a good or service for another good or service. capital. Exports Goods and services produced in one nation and sold in other nations. countries have comparative advantages in the production of commodities that are intensive in the use of the factors of production with which their endowments are relatively abundant.Stock. Also. The EU has eliminated quotas and tariffs among its members and created other common economic policies. Experimental Economics The study of people's behavior in the marketplace by scientific testing in the laboratory. Exchange Rate The price of one nation's currency in terms of another nation's currency. or for money. thus increasing real output and decreasing unemployment. Excess Reserves A bank's cash reserves beyond the required reserves. Can be positive or negative. Externalities Economic side-effects or third-party effects. which can be loaned. both common and preferred. Explicit Cost The monetary payment a firm must make to obtain a resource. Factors of Production .

Federal Deposit Insurance Corporation (FDIC) A federal agency that guarantees depositors' savings up to $100. Federal Budget The taxing and spending plan of the national government. electric and telephone companies. survivors. Its main function is controlling the money supply through monetary policy. directs the nation's monetary policy and the overall activities of the Federal Reserve. It requires creditors to furnish accurate and complete information to borrowers. human services. human resources. which is made up of seven members appointed by the President and confirmed by the Senate to 14-year terms. The Federal Reserve System divides the country into 12 districts. natural resources. The Board of Governors. Federal Insurance Contributions Act (FICA) A federal system of old-age. each with its own Federal Reserve bank. such as gas. The Federal Open Market Committee is the official policy-making body. what is required to produce the goods and services that people want.Productive resources. harassment or abuse in their efforts to collect debts. Federal Income Tax A tax paid by individuals and businesses to the federal government to fund such services as national defense.000 per account in most commercial banks. to earn the approved profit. it is made up of the members of the Board of Governors and five of the district bank presidents. capital goods and entrepreneurship. Fair Credit Billing Act A federal law that requires creditors to mail out bills at least 14 days before payment is due and also establishes procedures for resolving billing errors on credit accounts. Fair Credit Reporting Act A federal law governing the activities of credit bureaus and creditors. it also establishes a process consumers may use to correct inaccuracies in credit reports. Federal Reserve Structure . disability and health-care insurance (Medicare) which requires employers to withhold (or transfer) wages from employees' paychecks and deposit that money in designated accounts. Fair-Return Price A price that allows a regulated monopoly. Fair Debt Collection Practices Act A federal law that bars collection agencies from using threats. savings banks and savings associations. Each district bank is directed by its nine-person board of directors. and the monitoring and regulation of trade. Federal Reserve The central bank of the United States.

Fixed Costs (FC) Costs of production that do not change as a firm's output level changes. price stability and reasonable rates of economic growth. Fixed Income Income that stays the same from week to week or month to month. credit unions. business or government will not be able to return money invested. Financial Planning Setting short-.The structure of the Federal Reserve revolves around a Board of Governors. Financial Risk The chance that an individual. costs that must be paid whether the firm produces or not.and long-range goals. including interest and transaction fees. mutual fund companies and other financial institutions that bring together savers and borrowers and buyers and sellers of stocks and bonds. Two appointees are designated by the President as Chairman and ViceChairman and are subsequently confirmed by the Senate to four (4) year terms. Finance Charge The total cost of credit. There are seven (7) members on the Board of Governors appointed to one fourteen (14) year term by the President. Fiscal Policy Changes in the expenditures or tax revenues of the federal government. Only one person from the twelve (12) Federal Reserve districts is only allowed appointment to the Board. pension funds. insurance companies. Firms Economic units that demand productive resources from households and supply goods and services to households and government agencies. such as mortgage or rent payments and car payments. Flexible (Floating) Exchange Rate . medium. Fixed Expenses Expenditures that are the same from week to week or month to month. then collecting and analyzing income and expenditure information to determine how to meet one's goals. Usually refers to income from pensions or bonds. undertaken to promote full employment. Financial Intermediaries Banks. Fixed Exchange Rate An exchange rate that is set and therefore prevented from rising or falling with changes in supply and demand for a nation's currency.

generally considered to be about 93-95 percent of the labor force. Functional Distribution Essentially. allowing for frictional unemployment of 5-7 percent. a rate free to rise or fall (to float).An exchange rate that is determined by the international demand for and supply of a nation's money. rather than investing in stock markets (portfolio investment). Foreign Investment The purchase of financial and/or physical assets in one county by businesses or people in another county. Free Rider One who enjoys the benefits of a good or service without paying for it. such as stocks. Full Employment The natural rate of employment. The rest may be lent out. thus "creating money. Functional Distribution of Income . Foreign Direct Investment (FDI) Investment that involves ownership of a firm or business in another country. managerial and technical assistance and other resources to the foreign country. Free Trade The voluntary exchange of goods and services in the absence of trade barriers and restrictions. usually financial. distribution between different groups." Fraud Wrongful or criminal deception intended to manipulate a person for the purpose of gain. Frictional Unemployment Unemployment caused by the short-term movement of people between jobs and by firsttime job seekers entering the labor force. Fraud Risk The chance that an investment has been misrepresented. The investing company frequently provides financial. This term can refer to either foreign direct investment or investment in foreign financial assets. 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. Foreign Exchange Market The market where the demand for and supply of foreign currencies determines exchange rates. always present in a dynamic economy. FDI involves things such as constructing factories on foreign soil.

with trade. Government Expenditures Goods and services provided by government and paid for by taxing and borrowing. Government Failure Policy and budget choices by government officials that result in inefficiency. people. investment. culture and ideas among countries. an aim or desired result. Government Revenues Funds raised through taxing and borrowing to pay for government expenditures. and profit. includes categories like military. Functions of Money Money functions as a medium of exchange. it is useful to examine the incentives of the participants in the government decision making. a democratically elected government makes decisions according to the will of (a majority of) the people. shows the breakdown of income received by individuals and businesses based on the type of resources provided to the productive process. while trading to obtain goods and services that it does not produce. schools and roads. Government Spending Spending by all levels of government on goods and services. Goods Tangible objects that satisfy economic wants. region or nation is able to concentrate on producing goods and services that it produces efficiently. roads and public education. interest. G Gains from Trade The increased output resulting from trade. government failure may occur so that government decisions do not represent the majority. Public-choice analysis is the branch of economics that studies how political decisions are actually made. In the real world.The division of an economy's total income into wages and salaries. rent. technology. Future Consequences Costs and/or benefits of a choice that will be paid or gained at a later time. When analyzing government policies. Globalization Although there is no one precise definition. . Federal government expenditures include national defense and a system of justice. the term usually refers to the increased flow of trade. Goal Something a person or organization plans to achieve in the future. and also a unit of account. Government Failures/Public-Choice Analysis In a civics textbook. State and local government expenditures include police. each individual. a store of value.

etc. such as color. H Heterogeneous Products Products (goods or services) that are differentiated by real or imagined differences in quality or other features. wages. health. taste.) before taxes and other deductions are withheld. wages.Grace Period A period of time allowed for payment of money owed. etc. Human Capital The health. Human Resources . Homogeneous Products Products (goods or services) that are identical. Gross Income A total amount of money earned (from salaries. effort and resources in education and training--to increase one's own knowledge. with no differentiating features. interest may be charged. Human Capital Investment Investment of time.. styling. Gross Pay A total amount of money earned (from salaries. Growth funds offer the potential for substantial gains over time. Also known as human resources. Also known as gross income. after the grace period has elapsed. warranties or complimentary services provided to those who buy the products. Also known as gross pay. education. etc. training. skills and values of people. Households Individuals and family units that buy goods and services (as consumers) and sell or rent productive resources (as resource owners).) before taxes and other deductions are withheld. experience. Horizontal Merger A combination formed when two businesses producing the same goods or services merge. or to develop those assets in others. Gross Domestic Product (GDP) The market value of all final goods and services produced in a country in a calendar year. but shares fluctuate in value during ups and downs in financial markets. skills. Growth Fund A mutual fund whose major objective is long-term capital growth. etc. Housing Accommodation in houses. apartments.

wages. such as money. Imperfect Competition Any market structure in which firms are not price takers. illegal use of a person's legal and financial identification (for example. equal to what the resource could have earned in the best-paying alternative employment. Imports Goods and services bought from sellers in another nation. Impulse Buying Buying goods or services without comparison shopping or forethought about costs and benefits.The health. interest and dividends. Implicit Price Deflator A price index that compares the prices of all the goods and services produced in the current-year gross domestic product (GDP) to the price levels that prevailed for those same goods and services in an earlier year or years. May include salaries. Income Effect A portion of the effect on quantity demanded caused by a change in the price of a good or service. that motivates people to do something. The implicit price deflator is used to adjust values of nominal or current-price GDP to obtain values for real GDP. Also known as human capital. education. but instead must seek the price and output levels that maximize their profits. . skills and values of people. experience. I Identity Theft Unauthorized. A fall in price. his or her Social Security number or PIN). increases a consumer's real income and leads to a change in the quantity demanded of that good or service. training. Income Elasticity of Demand The percentage change in the demand for a good or service divided by the percentage change in income. advantage or good feeling. for example. Income Payments earned by households for selling or renting their productive resources. Hyperinflation A very rapid rise in the overall price level. Implicit Cost The monetary income a firm sacrifices when it employs a resource it owns to produce a product rather than supplying the resource in the market. Incentive Any reward or benefit.

Insurance . each with its own qualifications and rules governing contributions and withdrawals. traditional and Roth. Inflation Risk The chance that the rate of inflation will exceed the rate of return on an investment. Income Tax Payments made by individuals and corporations to the federal government (and to some state and local governments) based on income received (both earned and unearned). Also known as a negative relationship. a quarter or a year. There are two types of IRAs. Income Statement The report of the revenue generated and expenses incurred by a firm in a designated time period. Institutional Investor A financial intermediary. such as a pension fund or a mutual fund." it sells blocks of stock shares to an investment firm that specializes in initial offerings of stocks and resells them to the public. Inferior Good A commodity whose quantity demanded falls when the consumer's real income rises. Innovation A new idea or method. such as a month. Indirect Relationship The relationship that exists when the values of related variables move in the opposite direction. individuals or other designated groups. Index Fund A mutual fund whose objective is to match the composite investment performance of a large group of stocks or bonds such as those represented by the Standard & Poor's 500 Composite Stock Index. Inflation A rise in the general or average price level of all the goods and services produced in an economy. that buys stock and other investments for clients. Initial Public Offering (IPO) A company's first sale of stock to the public. Individual Retirement Account (IRA) An account in which an individual may set aside earned income in a tax-deferred savings plan for his or her retirement. 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). When a company "goes public.Income Inequality The unequal distribution of an economy's total income among families.

disability and life. for which they pay premiums. for example) or a bond. renter's. Intensive Growth Quick. rapid growth in a certain sector or area. Intermediate Good A good that is used in the production of final goods and services. or events in one part of the world or sector of the economy affect other parts of the world or other sectors of the economy. Inventory An itemized list of goods held by a person or business. Interdependence A situation in which decisions made by one person affect decisions made by other people. injury or death.A practice or arrangement whereby a company provides a guarantee of compensation for specified forms of loss. application. People obtain such guarantees by buying insurance policies. Inventors Someone who creates or devises a new process. damage. health. Intermediate-Term Goal Something a person or organization plans to achieve from one to five years in the future. The process allows for the spreading out of risk over a pool of insurance policyholders. at a particular rate. Interest Rate The price paid for using someone else's money. with the expectation that only a few policholders will actually experience losses for which claims must be made. expressed as a percentage of the amount borrowed. Internal Revenue Service (IRS) The government agency that collects federal income taxes. Also a quantity of goods held in stock. for the use of borrowed money. homeowner's. Interest Money paid regularly. Interest Rate Risk The chance that interest rates may change (upward) while the saver is "locked in" to a (lower) rate for a time deposit (a CD. or article of application. machine. International Monetary Fund (IMF) An international organization established to supervise exchange-rate arrangements and to lend money to member countries having difficulties meeting their financial obligations to other countries. Types of insurance include automobile. Investing .

In personal finance. tax-deferred savings program for self-employed people. bonds. Investment The purchase of capital goods (including machinery. Keynesian Theory The macroeconomic theory holding that business cycles are caused by changes in aggregate demand and that such cycles can and should be influenced by fiscal and monetary policy undertaken to promote economic stability. real estate. Also a paid position of regular employment. allowing them to set money aside for their retirement. mutual funds and other investment instruments. J Job A piece of work usually done on order at an agreed-upon rate. mutual funds. L Labor The quantity and quality of human effort available to produce goods and services. Labor Market . Invisible Hand A figure of speech representing the idea that firms and individuals making decisions in their own self-interest will at the same time create economic order and promote society's interests.The process of putting money someplace with the intention of making a financial gain. Investment Return The additional income earned from saving or investing money. bonds. Keynesian Economics A school of thought that emphasizes the role government plays in stabilizing the economy by managing aggregate demand. often expressed as an annual percentage of the amount invested. the amount of money invested in stocks. Investment possibilities include stocks. technology or new buildings) that are used to produce goods and services. Labor Force The people in a nation who are aged 16 or over and are employed or actively looking for work. and other financial instruments or ventures. K Keogh Plan A federally-approved. coined by Adam Smith.

Law of Supply As the price of a good or service that producers are willing and able to offer for sale during a certain period of time period rises (or falls). oceans. When investments are made to improve fields of land or other natural resources. Also known as natural resources. 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. Late Fee In a credit arrangement. inventories to sales ratio and unemployment duration that tend to change after real output changes. virgin forests and actual fields of land. the quantity of that good or service supplied rises (or falls). capital resources. the quantity of that good or service that people are willing and able to buy during a certain period of time falls (or rises). Law of Diminishing Marginal Utility A widely observed relationship in which the additional satisfaction (marginal utility) associated with consuming additional units of the same product in a given amount of time eventually declines. As more and more units of a variable input (usually labor) are added to the fixed input. successive increases in a variable factor of production added to fixed factors of production will result in smaller increases in output.The labor supply and labor demand curves. Law of Demand As the price of a good or service rises (or falls). Land "Gifts of nature" that can be used to produce goods and services. Leading Economic Indicators . a fee charged when payment is received after the due date. the additional (marginal) output associated with each increase in units of the variable input will eventually decline. Lagging Indicators Economic variables such as the prime interest rate. in part. Labor Union An economic institution that represents an organized group of workers (by industry or by type of worker regardless of the industry) to negotiate with management by means of collective bargaining. for example. when at least one input (usually capital) is fixed. labor cost per unit of output. those resources become. mineral deposits. air. Law of Diminishing Marginal Returns Describes a phenomenon observed in all short-run production processes. In other words.

Liability Insurance Coverage Automobile insurance that pays for costs of bodily injury and property damage when the insured person damages someone or something with his or her car. describe his or her qualifications for that job. and incentives that forms the basis of a society and its economy. traditions and customs. in the United States. Letter of Application A letter written by a job-seeker to a prospective employer in which the job-seeker may introduce himself or herself. Legal Foundations of a Market Economy The laws and institutions that support a market economy. Lend To grant someone the use of something. Lender One who lends. institutions. partnership and sole proprietorship. Levels of Competition Various perspectives concerning economic participation that people fall under with regard to competition for resources. express interest in a particular job. on condition that the object borrowed or its equivalent will be returned (often with interest. manufacturers' new orders. may be an individual or a business. Liquidate To wind up the affairs of a company by identifying liabilities and selling off assets in order to make payments to creditors. in the case of money). Legal and Social Framework The system of laws. Liquidity . examples include protection of private property and enforcement of contracts. Liquid Investments Investments or savings (such as savings accounts and money market mutual funds) from which money can be accessed immediately. and new plant and equipment orders that tend to change before real output changes. Legal Forms of Business Forms of business organizations protected by a nation's laws. the three forms of business organization are the corporation. request an interview and generally seek to convince the employer that he or she would make a great employee. Liability Legal responsibility to pay for damages or losses one has caused.Economic variables such as unemployment claims. stock prices.

M Macroeconomic Equilibrium The equilibrium level of output and the price level where aggregate demand equals aggregate supply. Also called economic policies. or the health. the exact amount of time varies depending on the industry. Retail Sales Indicator. output and job standards prescriptions across several industries (social regulation). and monetary and fiscal policy. The consumer is instructed to send in a fee in order to obtain the loan. The loan never arrives. New Home/Construction Sales. involving aggregate demand.The ease with which savings or investments can be turned into cash. Maintaining Regulation Maintaining regulation is the upkeep and revision of price and output prescriptions for a specific industry (economic regulation). Long-Term Goal Something a person or organization plans to achieve at least five years in the future. for example. safety. Macroeconomics The study of economics concerned with the economy as a whole. Marginal Analysis . targeted to people who have run up large debts. offering a personal-debt consolidation loan on terms that seem to be very attractive. performance. Long Run A period of time long enough for firms to change the quantities of all the resources they use. Macroeconomic Indicators Macroeconomic indicators include Gross Domestic Product (GDP). Loan Scam An illegal scheme in which somebody runs an advertisement. Macroeconomic Policies Government actions designed to affect economic activity in an attempt to reach one or more macroeconomic goals. and Stock Prices. in the form of bank deposits and loans. such as reducing unemployment and inflation. Gross National Product (GNP). environmental. aggregate supply. determine the interest rate. Loanable Funds Market Market in which the supply and demand for money. Liquidity Risk The chance that an investor will find it difficult to turn an investment into cash (by trying to sell a house. the most common types are fiscal policy and monetary policy. in a down market for real estate). New Durable Goods orders.

A decision-making tool for comparing the additional or marginal benefits of a course of action to the additional or marginal costs. Market Price Risk . Marginal Resource Product The amount by which production would decrease if one unit of the resource was withdrawn from production. can be measured in dollars or satisfaction. Marginal Utility The extra value or satisfaction that a consumer obtains from consuming one additional unit of output. all of them pursuing their own self-interest. Marginal Propensity to Save (MPS) Change in saving as a proportion of change in disposable income. Marginal Benefit The additional gain from consuming or producing one more unit of a good or service. services. Marginal Revenue Product (MRP) The change in the total revenue of the firm when it employs one additional unit of a resource. Market Failures The systematic overproduction or underproduction of some goods and services that occurs when producers or consumers do not have to bear the full costs of transactions they undertake. Usually related to externalities or the need for public goods. Marginal Propensity to Consume (MPC) Change in consumption as a proportion of change in disposable income. Marginal Revenue (MR) The addition to a producer's total revenue resulting from the addition of one unit to total output. and productive resources and to coordinate the diverse plans of consumers and producers. Market Economy An economy that relies on a system of interdependent market prices to allocate goods. the ratio of the change in saving to the change in disposable income that produces the change in saving. the ratio of the change in consumption to the change in disposable income that produces the change in consumption. Marginal Physical Product (MPP) The additional quantity that is produced when one additional unit of a resource is used in combination with the same quantities of all other resources. Marginal Cost The increase in a producer's total cost when it increases its output by one unit.

Monetary Incentive A factor related to money. Markets Places. Monetarist Theory A school of thought that emphasizes the role changes in the money supply play in determining national income and price level.The chance that the value of an investment will go down because of a change in supply and demand. income or economic wealth that encourages people to do something. the lowest amount that a borrower must pay toward the credit balance each month in order to avoid a penalty. Minimum Payment In a credit arrangement. Medicare A federal health-care program that pays for certain medical and hospital costs for people aged 65 and older (and for some people who are under the age of 65 and disabled). with how prices and outputs are determined in those markets. Medium-Term Goal Something a person or organization plans to achieve from one to five years in the future. Median Income The middle value or midpoint of incomes of people in a specified area where half of the incomes are above the middle value and half of the incomes are below it. ranging from many buyers and sellers to few or even single buyers or sellers. Part of Social Security. institutions or technological arrangements where or by means of which goods or services are exchanged. Monetarists argue that in the long run only changes in the money supply change the price level. Market Structure The degree of competition in a market. full employment and reasonable rates of economic growth. firms and markets. Microeconomics The study of economics concerned with individual units of the economy such as households. Also. Money . and with how the price mechanism allocates resources and distributes income. 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.

a firm that is the only buyer of a resource. Money Market Account An interest-bearing account similar to a checking account. also known as a monopsonist. Monopolistic Competition A market structure in which slightly differentiated products are sold by a large number of relatively small producers. M3) include various savings deposits. Deposits may be added at any time. serves as a medium of exchange. Money Supply Narrowly defined by economists as currency in the hands of the public plus checkingtype deposits. Money Market Mutual Fund (MMMF) A fund restricted by law to investing in the short-term money market. Monopolies Exclusive privilege or control over a service/commodity in a specific market. durability and acceptance. Monopsony A market situation in which there is only one buyer of a resource. some money market deposit accounts limit the withdrawals depositors may make without paying a penalty.Anything that is generally accepted as final payment for goods and services. Money Order A certificate purchased for a specific amount of money and signed over by the purchaser to the person or business named on the certificate. Money Market Deposit Account An interest-bearing account similar to a checking account. Money Management A system for income and spending that allows for the achievement of financial and consumer goals. Other definitions of the money supply (M2. MMMFs provide low risk and low returns. Monopoly A market structure in which there is a single supplier of a good or service. uniformity. Also. also called M1. some money market accounts limit the withdrawals depositors may make without paying a penalty. and in which the barriers to new firms entering the market are low. money market deposits and money market mutual fund balances. . stability in value. Deposits may be added at any time. also known as a monopolist. but they maintain their investment value. Also known as money market account. Also. a firm that is the single supplier of a good or service for which there are no close substitutes. Also known as money market deposit account. a store of value and a standard of value. Characteristics of money are portability.

bonds or money market instruments. capital resources. air. those resources become. Multinational Corporation A corporation that operates in two or more countries. Also known as land. virgin forests and actual fields of land. Natural Resources "Gifts of nature" that can be used to produce goods and services. oceans. also called public debt. Mutual Fund A pool of money used by a company to purchase a variety of stocks. . in part. National Debt The total amount owed by the national government to those from whom it has borrowed to finance the accumulated difference between annual budget deficits and annual budget surpluses. The multiplier also works in reverse when spending decreases. When investments are made to improve fields of land or other natural resources." it is a cost imposed on third parties by the production or consumption of other parties. Natural Monopoly An industry in which the advantages of large-scale production make it possible for a single firm to produce the entire output of the market at a lower average cost than a number of firms each producing a smaller quantity. businesses or government can cause large changes in economic production. Multiplier Effect The idea that a small increase in spending by consumers. Sometimes referred to as "third-party cost" or "spillover cost. Negative Externality A negative side effect that results when the production or consumption of a good or service affects the welfare of people who are not the parties directly involved in a market exchange. mineral deposits. for example.Mortgage A special type of loan for the purchase of a house or other real estate. NASDAQ used to be the acronym for National Association of Securities Dealers Automated Quotation System. N NASDAQ An electronic marketplace enabling buyers and sellers to get together via computer and hundreds of thousands of miles of high-speed data lines to trade stocks. Net Exports Exports minus imports. Provides diversification and professional management for investors.

New Classical Theory A school of thought that holds that people's expectations are important and therefore government policies will have a limited effect on the business cycle since individuals and firms will take government policies into account when making decisions. Banks charge penalty fees for NSF checks. Nominal Rate of Return The rate of return from an investment before adjusting for inflation. a non-clearing market does not move towards prices which balance the quantity supplied and the quantity demanded. Changes in real national income are a product of unexpected changes in the level of prices. Non-monetary Incentive A factor not related to money. An NSF is. . Net Worth The current value of a person's assets minus liabilities. thereby. Non-sufficient Funds (NSF) A term or notation used by banks in reference to checks written for more than the balance in a bank customer's checking account. founded in 1792. examples include street lights and national defense. examples include advertising and promotional gifts.Net Pay The amount of money a person receives within a pay period after taxes and other deductions are taken out of his or her paycheck. measured in current prices. Non-clearing Markets Anti-thesis of a clearing market. Non-price Determinants Non-price determinants can be interactions that do not affect the price of the wide range of supply and demand factors. such markets do not clear surpluses and shortages (excess supply and demand. a check that bounces. New York Stock Exchange (NYSE) The oldest stock exchange in the United States. usually one year. Nonexclusion A property of certain goods and services such that (once the goods or services are provided) they cannot be denied to or withheld from people who have not paid for the goods or services. in colloquial terms. of all final goods and services produced in a nation during a given period of time. income or economic wealth that encourages people to do something. Non-price Competition Competition by firms trying to attract customers by methods other than reducing prices. Nominal Gross Domestic Product (GDP) The total market value.

Some oligopolies produce homogeneous products. Opportunity Cost The second-best alternative (or the value of that alternative) that must be given up when scarce resources are used for one purpose instead of another.Nonprofit Organization An organization that is exempt from federal (and sometimes state) taxes. Open Market Operations The buying and selling of government bonds by the Federal Reserve to control bank reserves and the money supply. Outsourcing Sometimes called offshoring. taxpayers. subsidized beneficiaries and. receives income from donors. and where barriers to new firms entering the market are very high. a check that bounces. Overdraft A check written for more than the balance in one's checking account. in colloquial terms. The bank will mark such a check NSF. O Occupation A job or profession. Operating Costs The expenses of doing business. without leading to any net entry or exit by producers in that market. Normal profits are an economic cost of production. Also called normal profits. Oligopoly A market structure in which a few. relatively large firms account for all or most of the production or sales of a good or service in a particular market." and will charge a penalty fee for the nuisance involved in handling a bounced check. Normal Rate of Profit Profits just high enough to compensate producers for the explicit and implicit costs (including opportunity costs) they incur in producing a particular good or service. and therefore should provide its goods or services free or below cost. indirectly. . they mark a point at which any lower level of profit would lead a producer to pursue some other use of his or her resources. outsourcing occurs when a firm in one country tries to reduce costs by locating production facilities in other countries and/or by hiring cheaper foreign workers. for "non-sufficient funds. sometimes identified by the degree of skill required. Normal Good A commodity whose quantity demanded goes up when the consumer's real income rises. others produce heterogeneous products. also a category of work.

The lender then gives the borrower cash in the amount stated on the check. systematic way. Deposits and withdrawals are recorded in the saver's passbook. Evaluate Alternatives. the date by which the minimum payment must be made. mutual funds and real estate. Perfect Competition . and Make a Decision. Per Capita Gross Domestic Product (GDP) The total market value of all final goods and services produced in an economy in a given year divided by the population. Paper Money Certificates of various denominations generally recognized and accepted as a medium of exchange within a nation and elsewhere. Pegged Exchange Rate An exchange rate that is fixed within a certain range or against a major currency or basket of currencies. bonds.P PACED Decision-Making Process A decision-making process designed to help people solve problems in a rational. Payment Due Date In a credit arrangement. Payroll Deduction An amount of money automatically subtracted from an employee's gross pay for taxes. retirement benefits. by a group of governments. in the case of the euro. Paper money is issued and backed by national governments or. Pension Fund An account established by a business to fund retirement benefits for its workers. minus the fee. however. It includes the following steps: State the Problem. insurance. Passbook Savings Account A savings account offering high liquidity but usually a low rate of interest. Identify Criteria. when the lender cashes it. List Alternatives. No credit background check is required. Partnership A business with two or more owners who share the firm's profits and losses. The cost (in fees and interest) to those who use payday loans is often high. Pension funds invest in stocks. Payday Loan A loan issued to a borrower who writes a post-dated check made out to a lender (usually a company specializing in payday loans and other financial services targeted to lowincome customers) for the amount he or she wishes to borrow plus a fee. when calculated as an APR. etc. and holds the check until the borrower's next payday.

Perfectly Elastic Demand A situation in which even the smallest change in price will cause consumers to change their consumption by a huge amount. Perfectly Inelastic Supply A situation in which supply will not change regardless of the change in price or the length of time allowed for change. Personal Distribution of Income A classification of the income received by individuals or families. Firms in perfect competition are price takers and in the long run will earn only normal profits. In the former Soviet Union. how to produce and for whom to produce are answered by means of a central plan rather than by markets. Periodic Income Money received but not earned on a regular schedule--for example. Buyers will purchase as much of a product or resource as is available at a constant price. PIN (Personal Identification Number) A confidential code used to access private financial information or to make transactions (at an ATM. a State Planning Committee (Gosplan) oversaw planning for the production and distribution of most goods and services.A market structure in which a large number of relatively small firms produce and sell identical products and in which there are no significant barriers to entry into or exit from the industry. Personal Resources The time. Periodic Expense An expenditure that occurs occasionally and for which people budget money. Sellers will make available as much of the product or resource as buyers will purchase at a constant price. for example). . ranging from those receiving the highest level of income to those receiving the lowest. but is non-human. summer jobs and gifts from relatives. Physical Capital An asset used in production that is made by humans. shows the number of people in various income categories. Planned Economic System An economic system where the questions of what to produce. Perfectly Inelastic Demand A situation in which there is no change in the quantity demanded as the price changes. Perfectly Elastic Supply A situation in which the smallest change in price would lead to an infinite change in quantity supplied. from occasional baby-sitting jobs. money and skills that a person has.

The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. Price Elasticity of Demand The responsiveness of the quantity demanded of a good or service to changes in its price. The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Price Ceiling A legally established maximum price that may be charged for a good or service. Price The amount of money that people pay when they buy a good or service. variously defined. last month's balance. Price Elasticity of Supply The responsiveness of the quantity supplied of a good or service to changes in its price. for example. Sometimes defined relatively--by reference. reflecting a consumer's judgment that the benefits to be obtained warrant the costs to be paid. the amount they receive when they sell a good or service.Planned Spending Thoughtful. to the income needed to provide for adequate food. Positive Externality A beneficial or positive side effect that results when the production or consumption of a good or service affects the welfare of people who are not the parties directly involved in a market exchange. Potential Gross Domestic Product (GDP) The real GDP an economy would produce if its labor and other resources were fully employed." it is a benefit obtained without compensation by third parties from the production or consumption of other parties. Portfolio A person's or an institution's collection of savings and investments. Premium The fee paid for insurance protection. Sometimes referred to as "third-party benefit" or "spillover benefit. deliberate spending. . housing and clothing in a nation or region. for example. to the average household income in a nation or region. Price Discrimination Charging different customers different prices for the same good or service. Previous Balance In a credit arrangement. Poverty The state of being poor. Sometimes defined absolutely--by reference.

Production Possibilities Frontier . or otherwise using productive resources to create goods or services used to to satisfy a want. one firm sets the price and the other firms follow. Private Property A basic institution in a market economy. Property rights are defined. enforced and limited through the process of government. Price Leadership An arrangement in an oligopolistic industry in which one firm makes pricing decisions for the entire industry.Price Floor A legally established minimum price that may be charged for a good or service. Producers People and firms that use resources to make goods and services. legal protection against invaders and the right to transfer property to other. Primary Market The market where new securities are offered for sale for the first time. Principal An original amount of money invested or lent. designing. Private Good A good that provides benefits only to the purchaser. growing. used to calculate inflation. private property involves the right to exclusive use. Production A process of manufacturing. Price Stability The absence of inflation or deflation. Price Taker A firm that is unable to set a price that differs from the market price without losing profit. Price Level The weighted average of the prices of all goods and services in an economy. Investment banks buy shares of stocks directly from corporations that issue them and sell these shares to others. a firm in a perfectly competitive industry. a broad social goal and criterion for measuring the performance of an economic system. Producer Surplus The difference between the price firms would have been willing to accept for their products and the price they actually receive. Product A good or service that can be used to satisfy a want.

Assigning of property rights to individuals. public schools. Progressive Tax A tax that take a larger percentage of income from people in higher-income groups than from people in lower-income ones. profit is at a maximum when marginal revenue equals marginal cost. capital resources and entrepreneurship used to make goods and services. that could be produced with a given amount of productive resources and level of technology. Profit Income received for entrepreneurial skills and risk taking. Profit Maximization Where MR = MC. etc. or two bundles of goods. Productive Efficiency A firm operating where it produces a given quantity and quality of goods at the lowest possible cost. federal income tax is an example. Profit Motive The desire to make money which motivates or causes people to work hard to produce goods and services. Public Goods Goods. calculated by subtracting all of a firm's explicit and implicit costs from its total revenues. Productive Resources Natural resources. human resources. collectives or governments depends on the economic system. the U. often supplied by the government. Proportional Tax A tax that takes the same percentage of income from people in all income groups. Payments go to state and/or local governments to pay for police protection.S. Public-Choice Analysis . for which use by one person does not reduce the quantity of the good available for others to use.A table or graph that shows the full employment capacity of an economy in the form of possible combinations of two goods. and for which consumption cannot be limited to those who pay for the good. also known as technical efficiency. Property Rights Legal protection for the boundaries and possession of property. Property Tax A tax on land and structures built on it. libraries. Productivity The amount of output (goods and services) produced per unit of input (productive resources) used.

in command economies. the limit on the quantity of a product that may be imported or exported. rights to sell goods as a representative of the pyramid company. Each recruited agent then recruits others to join. the total amount spent during the billing cycle. Purchases In a credit arrangement. that is. stated as a percentage of the amount invested.The study of decision making as it affects the organization and operation of government and other collective organizations. more typically a production target assigned by government planning agencies to the producers of a good or service. Purchasing Power The amount of goods and services that a monetary unit of income can buy. with each new participant paying a fee to join. Quantity Supplied The amount of a good or service sellers are willing and able to offer at a given price in a given period of time. Participants are recruited by advertisements offering big profits to those who pay a fee for agency rights. usually calculated on an annual basis. Rational Expectations Theory . Quantity Demanded The amount of a good or service people will buy at a given price in a given period of time. Involves the application of economic principles to political science topics. including predictions about the effect of present and future policy actions by the government. Pyramid Scam An illegal scheme of selling goods. established by government laws or regulations. Quotas In international trade. The key is that each person is promised commissions not only on his or her sales but on the sales of other people they recruit as distributors. Rational Expectations Expectations about the future rate of inflation or other economic events that people form using all available information. R Rate of Return Earnings from an investment. Q Quality Comparison Examining products to learn whether one is better than others.

Recession A decline in the rate of national economic activity. Nominal Two ways of expressing monetary values.e. Real Estate Property such as land. Real vs. Regressive Tax . Real Gross Domestic Product (GDP) GDP measured in dollars of constant purchasing power. six months). Payments go to state and/or local governments to pay for police protection. that is. houses and office buildings. The goal is to transfer money from higher-income groups to lower-income groups. and programs designed to provide training to workers or to encourage private investments in education or other kinds of human capital. Redistribution of Income The transfer of income (in cash or in kind) through government taxation. usually the implicit price deflator. Real monetary values are obtained by adjusting nominal monetary values with an appropriate index of prices. Real Interest Rates The nominal (posted) interest rate minus the rate of inflation. real monetary values are measured in constant prices.A branch of New Classical theory which holds that firms and individuals have rational expectations about the economy and government policies and thus may pursue their own interests in such a way as to render those policies ineffective. Often used as a measure of economic activity. Nominal monetary values are measured in current prices.. Real Wage The wage rate adjusted for inflation. the volume of goods and services that money wages will buy. etc. public schools. Recessionary Gap The amount by which the aggregate expenditures curve must increase (shift upward) to increase the real GDP to the full-employment noninflationary level. etc. The measure is obtained by adjusting nominal GDP (GDP measured in current prices) by an appropriate price index.). spending and assistance programs targeted at particular income groups. factories. in prices of a given or base period. libraries. Rational Ignorance A decision not to obtain information about political issues or candidates because the costs of doing so outweigh the benefits. the purchasing power of wages. usually measured by a decline in real GDP for at least two consecutive quarters (i. Real Estate Tax A tax on land and structures built on it (houses.

Usually includes the jobseeker's name. career objective. a measure of opportunity costs and therefore the price that affects economic decision making. . Sales taxes and excise taxes are examples. awards. output and job standards across several industries. telephone number. 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. Not to be confused with profit. environmental. address. work experience. Retirement Accounts Accounts such as IRAs (Individual Retirement Accounts). safety. and capital. performance. Revenue The money a business receives from customers who buy its goods and services. Rent to Own An arrangement whereby consumers rent something (often furniture). education. SEPs (Simplified Employee Pension Plans) and Keogh Plans that allow individuals to save money toward retirement on a tax-deferred basis. Resume A document describing a job-seeker to prospective employers. and become owners of the rented object(s) after a specified period of time--sometimes automatically and sometimes with an additional payment. Return Earnings from an investment. human resources (including labor and entrepreneurship). Relative Price The price of one good in relation to the price of another good. A legal business but very costly to consumers. Reserve Requirements The fraction of banks' deposits that they are required by law to keep on hand or with the Federal Reserve. Regulation Economic regulation is the prescription of price and output for a specific industry. Resources The basic kinds of resources used to produce goods and services: land or natural resources. e-mail address. abilities. often a natural monopoly.A tax that takes a larger percentage of income from people in lower-income groups than from higher-income ones. Social regulation is the prescription of health. usually expressed as an annual percentage. offices held in organizations and special interests. making regular rental payments. Risk The chance of losing money.

Save To keep money for future use. Sales Revenue The money a business receives from customers who buy its goods and services. See also Wages. S Salaries Payments for labor resources. but they offer a potential for big gains. Salary A regular payment.Risk of Financial Loss The chance that the value of an investment (the principal) will decrease. unlike wages. The number of years is determined by dividing 72 by the annual rate of return. Not to be confused with profit. . regulating natural monopolies. Sales Tax Tax in the form of a percent of the cost of a good or service. regulating externalities. or nine years. paid to local and state governments when goods and services are purchased. growth stocks are much riskier. In the United States. Thus. especially in the case of professional or white-collar employees. offering some economic security and income redistribution to individuals. often at monthly or biweekly intervals. not explicitly based on the number of hours worked. made by an employer to an employee. Rule of 72 A mathematical rule for determining the number of years it will take for an investment to double in value. Risk/Reward Ratio As applied to investments: the greater the risk. Sale An exchange of goods or services for money. providing information and services to enable the market to work better. Dividing 72 by the number of years in which an investor wishes to double his or her return will yield the necessary rate. Role of Government Government activity in establishing a framework or rules of the game in economic life. to divert money from current spending to a savings account or another form of investment. For example: passbook savings accounts offer depositors very low risk but also low rates of interest. this activity involves preserving and fostering competition. providing certain public goods. the greater the potential reward. an investment expected to earn interest at a rate of 8 percent will double an investor's funds in 72/8. assuring a sound monetary system and promoting overall economic stability and growth. Salaries are paid for services rendered and are not based on hours worked.

S. for example.S. information systems and technology. thinking skills. government. interpersonal skills and the ability to acquire and use resources.S.Savers Persons who desire to conserve their monetary funds to the best of their ability. the New York Stock Exchange. in return for the government's promise (represented by the bond. such as savings accounts and certificates of deposit (CDs). Savings Bond Securities issued by the U. including firms and government agencies. also a situation in which a resource has more than one valuable use. Savings Bonds. Savings Plan A plan for setting aside money for future use. Savings Account An interest-bearing account (passbook or statement) at a financial institution. The Commission determined that success in any occupation requires basic skills (reading. Savings Instruments Arrangements by means of which people save money. personal qualities. since they are backed by the U. certificates of deposit (CDs). Department of Labor Secretary's Commission on Achieving Necessary Skills in 1992. Secondary Market A market in which stocks can be bought and sold once they are approved for public sale. Scarcity The condition that exists because human wants exceed the capacity of available resources to satisfy those wants. Savings bonds are considered to be risk-free investments. a nontransferable debt certificate) to repay the loan with interest. The interest is free from state and local taxation. including savings accounts. . Savings Money set aside for a future use that is held in easily-accessed accounts. The problem of scarcity faces all individuals and organizations. Saving Disposable income (income after taxes) minus consumption spending. writing and math). Secondary Effects Effects indirectly related to a course of action whose influence will only be seen or felt later in time. Treasury in relatively small denominations for individual investors. SCANS Skills Guidelines for workplace success developed by the U.S. money market deposit accounts and U. Investors who buy savings bonds in effect make a loan to the government.

held on file in a financial institution. Short Run A period of time long enough for existing firms to change some--but not all--of the resources they use. examples include street lights and radio broadcasts. Service Charge A fee charged by a financial institution for certain financial services provided to customers. Social Security Tax A tax levied on employers and employees to finance public Social Security benefits. Simple Interest Interest paid on the initial investment (the principal) only. signatures of doubtful origin can be checked against those recorded on signature cards. Services Activities performed by people. Signature Card A document bearing a person's signature.Secured Debt Credit with collateral (for example. firms or government agencies to satisfy economic wants. Shortage The situation that results when the quantity demanded for a product exceeds the quantity supplied. In cases of suspected forgery. tax-deferred retirement plan for an individual with a small business. Shared Consumption A property of a good or service such that it can be used by many without diminishing another's ability to consume the same good. Social Security A federal system of old-age. a house or a car) for the lender. Calculated by multiplying the investment principal times the annual rate of return times the number of years involved. disability and hospital care (Medicare) insurance which requires employers to withhold (or transfer) wages from employees' paychecks and deposit that money in designated accounts. Simplified Employee Pension (SEP) Plan A qualified. . survivors'. Sole Proprietorship A business owned by one person who receives all the profits and is responsible for all the debts incurred by the business. Short-Term Goal Something a person or organization plans to achieve within a one-year time period. Generally happens because the price of the product is below the market equilibrium price.

lobby politicians and publicize their concern. Interest rates for statement accounts are usually lower than rates for other savings instruments. it also requires trade and increases interdependence. They work together to gather information. safety and health. Spend Use money now to buy goods and services. State Income Tax A percentage of income paid by individuals and businesses to a state government to fund services such as roads. withdrawals and interest earned once a month or once a quarter. Statement Savings Account A savings account for which the bank sends a statement detailing deposits. but a depositor can open a statement account with very little money and can also withdraw money from a statement account at any time. Sometimes called "third-party cost" or "negative externality. Spillover Benefit A beneficial or positive side effect that results when the production or consumption of a good or service affects the welfare of people who are not the parties directly involved in a market exchange. Specialization increases productivity. Specialization A situation in which people produce a narrower range of goods and services than they consume. the date of the last purchase billed on the statement." Spillover Cost A negative side effect that results when the production or consumption of a good or service affects the welfare of people who are not the parties directly involved in a market exchange. social class or individual with reference to the adequacy of necessities and comforts of daily life.Special Interest Group An organization of people with a particular legislative concern." Standard of Living The level of subsistence of a nation. Stock Market . Stock An ownership share or shares of ownership in a corporation. Statement Closing Date In a credit arrangement. Spending Diary A record of spending over a period of time. Sometimes referred to as "third-party benefit" or "positive externality. Not all states levy an income tax.

a tax cut giving businesses an incentive to invest and expand. Substitute A good or service that may be used in place of another good or service. Surplus The situation that results when the quantity supplied of a product exceeds the quantity demanded. Tariff A tax on an imported good or service. the buying and selling of stock. Substitute Good A good that can be consumed or used in the place of another good with minimal differences. training and location not matching up with available job openings that reflect the basic structure of the economy. Generally happens because the price of the product is above the market equilibrium price.. examples include tap water for bottled water (or vice versa) and movies for concerts (or vice versa). Stock Mutual Fund A mutual fund that buys stocks in order to make profits for the investors.g. Supply-Side Fiscal Policy Policy intended to increase an economy's productive capacity by shifting aggregate supply. Tax Incidence A measure of who actually pays a tax. T Take-Home Pay The amount of money a person receives within a pay period after taxes and other deductions are taken out of his or her paycheck. . examples include tap water for bottled water (or vice versa) and movies for concerts (or vice versa).A market in which the public trades stock that someone already owns. e. Substitute Goods and Services Goods or services that may be used in place of another good or service. Tax Loophole An omission or ambiguity in the tax law that allows some people to legally avoid paying certain taxes. skills. Structural Unemployment The type of unemployment resulting from people's present abilities. 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.

Trade Barriers Restrictions that prevent free trade among nations. Three Cs of Credit Three characteristics that determine a person's qualifications for obtaining a loan: Capital: Assets owned. Trade The exchange of goods and services for money or other goods and services. methods and machines. Overnight Lending Through the Discount Window. Trade-offs among Goals . Technological Changes Improvements in a firm's ability to produce due to improved processes. Total Revenue (TR) All money received from selling a good or service. Character: A person's past history in repaying debts. the maximum amount that can be charged on the credit account. Total Available Credit In a credit arrangement. Trade-off The giving up of one benefit or advantage in order to gain another regarded as more favorable. Tools of the Federal Reserve The tools of the Federal Reserve are wide-ranging. The New Term Auction Facility. and Changing the federal funds rate target to respond to macroeconomic risk. the sum of total fixed costs plus total variable costs. They include: Open Market Operations. Total Credit Line In a credit arrangement. and nontariff restrictions such as licensing requirements and bureaucratic red tape. the total credit line minus the new balance. import and export quotas.Taxation Taxation is the process in which a charge is imposed upon a taxpayer by a state or a legal equivalent of a state. Total Cost (TC) All costs associated with producing a good or service. Taxes Compulsory payments to governments by households and businesses. Examples include tariffs. the price times the quantity sold of each item. Capacity: A person's current and future earnings relative to current debt.

Hidden unemployment the unemployment of potential workers. U U. uniform manner. The term usually refers to the movement from a planned economic system into a competitive market system. Cyclical unemployment occurs with downturns in the economy and evaporates when the economy rebounds. which is not reflected in official statistics. Savings Bonds in effect make a loan to the government. Frictional unemployment details people who are unemployed while transitioning between jobs. a . Hardcore unemployment describes persons who may be unemployable due to physical or mental incapacitation. searching for sellers.S. Transaction Costs Costs associated with buying or selling goods and services that are not included in the money prices of those goods and services. Tragedy of the Commons Overuse or misuse of a commonly-owned resource. Examples include obtaining information on prices and product quality. Transfer Payments Money collected by the government from one group and given to others. Truth in Lending Act A federal law that requires creditors to disclose finance charges and interest rates in a standard. The results will help make clear-minded decisions whether or not to pursue a goal. Investors who buy U. and bargaining costs. Transition Economy An economy that is moving from one economic system to another. Types of Unemployment Their are varying types and degrees of unemployment. unemployment insurance payments and agricultural subsidies. Examples include Social Security benefits. Treasury in relatively small denominations for individual investors. Seasonal unemployment is another situation in which skilled workers are mismatched with the number of jobs. in return for the government's promise (represented by the bond.S. such as public grazing land or fishing waters. Traditional Economy An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution. Structural unemployment deals with an offset of skilled workers and available jobs.S. Savings Bonds Securities issued by the U.An economic analysis of calculating costs of achieving a goal verses the value of expected benefits of the goal.

Unplanned Spending Impulsive use of money with little or no consideration of alternatives and resulting in unplanned consequences. Unemployment The number of people without jobs who are actively seeking work. Variable Costs (VC) Costs of production that change as a firm's output level changes. Usury Law A law which establishes a maximum permissible interest rate for a particular type of loan. The interest is free from state and local taxation. Unit Pricing The cost per unit of measurement. for example. clothing. It is people's willingness to accept it that gives it value. A way for consumers to compare the costs of different sizes of the same item. Unemployment Rate The number of unemployed people. Unintended Consequences The unexpected and unplanned results of a decision or action.S. Loans at rates above the usury ceiling are illegal. Utility An abstract measure of the satisfaction consumers derive from consuming goods and services. Variable Expenses Expenditures that change from week to week or month to month--for food. Money need not have any intrinsic value.S. Value of Money The ability of money to buy goods and services. recreation and entertainment. government. since they are backed by the U. Variable Income Income that varies from week to week or month to month. Unsecured Debt Debt without collateral. expressed as a percentage of the labor force. Savings Bonds are considered to be risk-free investments. credit card debt. A wide variety of items has been used as money. V Value Added The difference between the value of output and the value of the intermediate goods used in the production of that output.nontransferable debt certificate) to repay the loan with interest. . U. for example.

employment at a job or in a position. Work Effort applied to achieve a purpose or result. skills and knowledge put to use to get something done. often for pay. merge. one of which supplies an ingredient of the other's product. Voluntary Exchange Trading goods and services with other people because both parties expect to benefit from the trade. Voluntary Trade Trading goods and services with other people because both parties expect to benefit from the trade. profession. Economists do not differentiate between wants and needs. W W-2 Form A federal income tax document that employers complete and send to their employees and to the Internal Revenue Service at the end of a year. Work Ethic A system of values in which central importance is ascribed to work and to qualities of character believed to be promoted by work. craft. occupation. trade. Vertical Merger A combination formed when two businesses. a sense of responsibility for doing a job well.Velocity of Money The average number of times each dollar is spent on final goods and services in a year. Withholding Money taken out of an employee's paycheck and sent to the government and credited to the employee's tax bill. Withdrawal The removal of money by a depositor from a financial account. business. etc. Work Skills . W-4 Form A federal income tax document that instructs an employer about how much money to withhold from an employee's paycheck for tax purposes. shows employee compensation and taxes withheld. Wage Payments for labor services that are directly tied to time worked. or to the number of units of output produced. Wants Desires that can be satisfied by consuming or using a good or service.

. producing goods and services. Workers People employed to do work.Ability to do things demanded in particular jobs. World Bank An international organization that makes loans and provides technical expertise to developing nations.