question

Scarcity

answer

limited quantities of resources to meet unlimited wants

question

Factors of production

answer

Land, labor, and capital; resources that are used to make all goods and services.

question

Land

answer

Natural resources, surface land, and water

question

Labor

answer

Human effort directed toward producing goods and services

question

Goods

answer

Tangible objects that can satisfy people's wants or needs

question

Services

answer

Actions that can satisfy wants or needs

question

Capital

answer

Previously manufactured goods used to make other goods and services

question

Productivity

answer

The amount of goods and services that results from a given level of inputs

question

Entrepreneurship

answer

Ability of taking a risk to develop new products and start new businesses in order to make profits

question

Technology

answer

Advance in knowledge leading to new and improved goods and services

question

Opportunity cost

answer

Value of the next best alternative given up for the alternative that was chosen

question

Production possibilities curve

answer

Graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time

question

Microeconomics

answer

Economic theory that deals with behavior and decision making by small units such as individuals and firms

question

Macroeconomics

answer

Economic theory dealing with the economy as a whole and decision making by large units such as the government

question

Economy

answer

The production and distribution of goods and services in a society

question

Economic model

answer

Theory or simplified representation that helps explain and predict economic behavior in the real world

question

Hypothesis

answer

An assumption involving or more variables that must be tested for validity

question

Economic system

answer

Way in which a nation uses its resources to satisfy its people's needs and wants

question

Tradition economy

answer

System in which economic decisions are based on customs and beliefs that have been handed down from generation to generation

question

Command economy

answer

System in which the government controls the factors of production and makes all the decisions about their use

question

Market economy

answer

System in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their families' best interests

question

Market

answer

Freely chosen activity between buyers and sellers of goods and services

question

Circular flow of economic activity

answer

Economic model that pictures income as flowing continuously between business and consumers

question

Mixed Economy

answer

System combining characteristics of more than one type of economy

question

Capitalism

answer

Economic system in which private individuals own the factors of production

question

Laissez-faire

answer

Economic system in which the government minimizes its interference with the economy

question

Free enterprise system

answer

Economic system in which individuals own the factors of production and decide how to use them within legal limits; same as capitalism

question

Profit

answer

Money left after all the costs of production - wages, rents, interest, and taxes, have been paid

question

Profit incentive

answer

Desire to make money that motivates people to produce and sell goods and services

question

Private property

answer

Whatever is owned by individuals rather than by government

question

Competition

answer

Rivalry among producers and sellers of similar goods and services to win more business

question

The Goals of free enterprise

answer

Freedom, efficiency, equity, security, stability, growth

question

Economic freedom

answer

The freedom to own property, to make a profit, and to make choices about what to produce, buy, and sell

question

Economic efficiency

answer

Wise of available resources so that costs do not exceed benefits

question

Economic equity

answer

The attempt to balance an economic policy so that everyone benefits fairly

question

Economic security

answer

Plans set up for unemployment problems solve worry over loss of jobs, sickness, or injury

question

Economic stability

answer

A situation in which there is economic growth, rising national income, high employment, and steadiness in the general level of prices; to reduce possible extreme ups and downs of the standard of living

question

Standard of living

answer

The material well-being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied

question

Economic growth

answer

Expansion of the economy to produce more goods, jobs, and wealth

question

Consumer

answer

Any person or group that buys or uses goods ands services to satisfy personal needs or wants

question

Disposable income

answer

Income (after taxes) that is available to you for saving or spending

question

Discretionary income

answer

Disposable income available for spending and saving after an individual has purchased the basic necessities

question

Rational choice

answer

Choosing the alternative that has the greatest value from among comparable-quality products

question

Competitive advertising

answer

Advertising that attempts to persuade consumers that a product is different from and superior to any other

question

Informative advertising

answer

Advertising that benefits consumers by giving information about a product

question

Bait and switch

answer

Ad that attracts consumers with a low-priced product, then tries to sell them a higher-priced product

question

Comparison shopping

answer

Getting information on the types and prices of products available from different stores and companies

question

Warranty

answer

Promise made by a manufacturer or a seller to repair or replace a product within a certain time period if it is found to be faulty

question

Brand name

answer

Word, picture, or logo on a product that helps consumers distinguish it from similar products

question

Generic brand

answer

General name for a product rather than a specific brand name given by the manufacturer

question

Consumerism

answer

Movement to educate buyers about the purchases they make and to demand better and safer products from manufacturers

question

Ethical behavior

answer

Acting in accordance with moral and ethical convictions about right and wrong

question

Credit

answer

Receipt of money either directly or indirectly to buy goods and services in the present with the promise to pay them in the future

question

Principal

answer

Amount of money originally borrowed in a loan

question

Interest

answer

Amount of money the borrower must pay for the use of someone else's money

question

Installment debt

answer

Type of loan repaid with equal payments or installments, over a specific period of time

question

Durable goods

answer

Manufactured items that have a life span longer than three years

question

Mortgage

answer

Installment debt owed on houses, buildings, or land

question

Commercial bank

answer

Bank whose main functions are to accept deposits, lend money, and transfer funds among banks, individuals, and businesses

question

Savings and loans association

answer

(S&L) A depository institution that accepts deposits and lends money

question

Savings bank

answer

Depository institution originally set up to serve as small savers overlooked by commercial banks

question

Credit union

answer

Depository institution owned and operated by its members to provide savings accounts and low-interest loans only to its members

question

Finance company

answer

Company that takes over contracts for installment debts from stores and adds a fee for collecting the debt: consumer ___ makes loans directly to the consumers at high rates of interest

question

Charge account

answer

Credit extended to a consumer allowing the consumer to buy goods or services from a particular company and to pay for them later

question

Credit card

answer

Credit device that allows a person to make purchases at many kinds of stores, restaurants, and other businesses without paying cash

question

Finance charge

answer

Cost of credit expressed monthly in dollars and cents

question

Annual percentage rate

answer

(APR) Cost of credit expressed as a yearly percentage

question

Credit bureau

answer

Private business that investigates a person to determine the risk involved in lending money to that person

question

Credit check

answer

Investigation of a person's income, current debts, personal life, and past history of borrowing and repaying debts

question

Credit rating

answer

Rating of the risk involved in lending money to a specific person or business

question

Collateral

answer

Something of value that a borrower lets the lender claim if a loan is not repaid

question

Secured loan

answer

Loan that is backed up by collateral

question

Unsecured loan

answer

Loan guaranteed only by a promise to repay it

question

Usury law

answer

Law restricting the amount interest that can be charged for credit

question

Bankruptcy

answer

The inabilility to pay debts on the income recieved

question

Club warehouse store

answer

Store that carries a limited selection of brands and items in large quantities and is less expensive that supermarkets

question

Convenience store

answer

Store open 16 to 24 hours a day, carrying a limited selection of relatively higher-priced items

question

Private-labeled products

answer

Lower-priced store-brand products carried by some supermarket chains and club warehouse chains

question

Durability

answer

Ability of an item to last a long time

question

Service flow

answer

Amount of use a person gets from an item over time and the value a person places on this use

question

Closing costs

answer

Fees involved in arranging a mortgage or in transferring ownership of property

question

Points

answer

Fees paid to a lender and computed as percentage of a loan

question

Lease

answer

Long-term agreement describing the terms under which property is rented

question

Security deposit

answer

Money a renter lets an owner hold in case the rent is not paid or an apartment is damaged.

question

Registration fee

answer

Licensing fee, usually annual, paid to a state for the right to use a car

question

Liability insurance

answer

Insurance that pays for bodily injury and property damage

question

Saving

answer

Setting aside income for a period of time so that it can be used later

question

Passbook savings account

answer

Account for which a depositor receives a booklet in which deposits, withdrawals, and interest are recorded

question

Statement savings account

answer

Account similar to a passbook savings account except that the depositor receives a monthly statement showing all transactions

question

Money market deposit account

answer

Account that pays relatively high interest rates, requires a minimum balance, and offers immediate access to money

question

Time deposits

answer

Savings plans that require savers to leave their funds on deposit for certain periods of time

question

Maturity

answer

Period of time at the end of which time deposits will pay a stated rate of interest

question

Certificates of deposit

answer

Time deposits that state the amount of the deposit, maturity, and rate of intrest being paid

question

Stockholders

answer

People who have invested in a corporation and own some of its stock

question

Capital gain

answer

Increase in value of an asset from the time it was bought to the time it was sold

question

Capital loss

answer

Decrease or bond in the value of an asset from the time it was bought to the time it was sold

question

Tax-exempt bonds

answer

Bonds sold by local and state governments; interest paid on the bond is not taxed by the federal government

question

Savings bonds

answer

Bonds issued by the federal gvernment as a way of borrowing money; they are purchased at half the face value and increase every 6 months until full face value is reached

question

Treasury bills

answer

Certificates issued by the U.S. Treasury in exchange for a minimum amount of $1000 and maturing to 3 months to 1 year

question

Treasury notes

answer

Certificates issued by the US Treasury in exchange for minimum amounts of $1,000 and maturing in 1 to 10 years

question

Treasury bonds

answer

Certificates issued by the US Treasury in exchange for minimum amounts of $1000 and maturing in 10 or more years

question

Broker

answer

Person who acts as a go-between for buyers and sellers of stocks and bonds

question

Over-the-counter market

answer

Electronic purchase and sale of stocks and bonds, often of smaller companies, which takes place outside the organized stock exchanges

question

Mutual fund

answer

Investment company that pools the money of many individuals to buy stocks, bonds, and other investments

question

Money market fund

answer

Type of mutual fund that uses investors' money to make short-term loans to businesses and banks

question

Pension plans

answer

Company plans that provide retirement income for their workers

question

Keogh plan

answer

Retirement plan that allows self- employed individuals to save a maximum of 15% of their income up to a specified amount each year, and to deduct that amount from their yearly taxable income

question

Individual retirement account

answer

Private retirement plan that allows individuals or married couples to save a certain amount of untaxed earnings per year with interest being tax-deferred

question

Roth IRA

answer

Private retirement plan that taxes income before it is saved, but which does not tax interest on that income when funds are used upon retirement

question

Diversification

answer

Spreading of investments among several different types of accounts to lower overall risk

question

Demand

answer

The amount of a good or service that consumers are able and willing to buy at various possible prices during a specified time period

question

Supply

answer

The amount of a good or service that producers are able and willing to sell at various prices during a specified time period

question

Market

answer

The process of freely exchanging goods and services between buyers and sellers

question

Voluntary exchange

answer

A transaction in which a buyer and a seller exercise their economic freedom by working out their own terms of exchange

question

Law of demand

answer

Economic rule stating that the quantity demanded and price move in opposite directions

question

Quantity demanded

answer

The amount of a good or service that a consumer is willing and able to purchase at a specific price

question

Real income effect

answer

Economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same

question

Substitution effect

answer

Economic rule stating that if two items satisfy the same need and the price of one rises, people will buy the other

question

Utility

answer

The ability of any good or service to satisfy consumer wants

question

Marginal utility

answer

An additional amount of satisfaction

question

Law of diminishing marginal utility

answer

Rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased

question

Demand Sschedule

answer

Table showing quantities demanded at different possible prices

question

Demand curve

answer

Downward sloping line that shows in graph form the quantities demanded at each possible price

question

Complementary good

answer

A product often used with another product

question

Elasticity

answer

Economic concept dealing with consumers' responsiveness to an increase or decrease in a price of a product

question

Price elasticity of demand

answer

Economic concept that deals with how much demand varies according to changes in price

question

Elastic demand

answer

Situation in which the rise or fall in a product's price greatly affects the amount that people are willing to buy

question

Inelastic demand

answer

Situation in which a product's price change has little impact on the quantity demanded by consumers

question

Law of supply

answer

Economic rule stating that price and quantity supplied move in the same direction

question

Quantity supplied

answer

The amount of a good or service that a producer is willing and able to supply at a specific time

question

Supply schedule

answer

Table showing quantities supplied at different possible prices

question

Supply curve

answer

upward-sloping line that shows in graph form the quantities supplied at each possible price

question

Technology

answer

Any use of land, labor, and capital that produces goods and services more effciently

question

Law of diminishing returns

answer

Economic rule that says as more units of a factor of production are added to other factors of production, after some point total output continues to increase but at a diminishing rate

question

Equilibrium price

answer

The price at which the amount of producers are willing to supply is equal to the amount consumers are willing to buy

question

Shortage

answer

Situation in which the quantity demanded is greater than the quantity supplied at the current price

question

Surplus

answer

Situation in which the quantity supplied is greater than the quantity demanded at the current price

question

Price ceiling

answer

A legal maximum price that may be charged for a particular good or service

question

Rationing

answer

The distribution of goods and services based on something other than price

question

Black market

answer

"underground" or illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold

question

Price floor

answer

A legal minimum below which a good or service may not be sold

question

Entrepreneur

answer

Person who organizes, manages, and assumes the risks of business in order to gain profits

question

Startup

answer

A beginning business enterprise

question

Small business incubator

answer

Private- or government funded agency that assists new business by providing advice or low-rent buildings and supplies

question

Inventory

answer

Extra supply of the items used in a business, such as raw materials or goods for sale

question

Receipts

answer

Income received from the sale of goods and/or services; also, slips of paper documenting a purchase

question

Sole proprietorship

answer

Business owned and operated by one person

question

Proprietor

answer

Owner of a business

question

Unlimited liability

answer

Requirement that an owner is personally and fully responsible for all losses and debts of a business

question

Assets

answer

All items to which a business or household holds legal claim

question

Partnership

answer

Business that two or more individuals own and operate

question

Limited partnership

answer

Special form of partnership in which one or more partners have limited liability but no voice in management

question

Joint venture

answer

Partnership set up for a specific purpose just a for a short period of time

question

Corporation

answer

Type of business organization owned by many people but treated by law as though it were a person; it can own property, pay taxes, make contracts and so on

question

Stock

answer

Share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation

question

Limited liability

answer

Requirement in which an owner's responsibility for a company's debts is limited to the size of the owner's investment in the firm

question

Articles of incorporation

answer

Document listing basic information about a corporation that is filed with the state where the corporation will be headquartered

question

Corporate charter

answer

License to operate granted by a corporation by the state where it is established

question

Common stock

answer

Shares of ownership in a corporation that give stockholders voting rights and a portion of future profits (after holders of preferred stock are paid)

question

Dividend

answer

Portion of a corporation's profit paid to its stockholders

question

Preferred stock

answer

Shares ownership in a corporation that give stockholders a portion of future profits (before any profits go to holders of common stock), but no voting rights

question

Franchise

answer

Contract in which one business (the franchiser) sells to another business (the franchisee) the right to use the franchiser's name and sell it's products

question

Market structure

answer

The extent to which competition prevails in particular markets

question

Perfect competition

answer

Market situation in which there are numerous buyers and sellers, and no single buyer or seller can affect price

question

Conditions of perfect competition

answer

A large market, a similar product, easy entry and exit, easily obtainable information, independence

question

Monopoly

answer

Market situation in which a single supplier makes up an entire industry for a good or service with no close subtitles

question

Barriers to entry

answer

Obstacles to competition hat prevent others from entering a market

question

Economics of scale

answer

Low productions costs resulting from large size of input

question

Patent

answer

Exclusive right to make, use or sell an invention for a specified number of years

question

Copyright

answer

Exclusive right to make, publish, or reproduce creative works for a specified number of years

question

Oligopoly

answer

Industry dominated by a few suppliers who exercise some control over prices.

question

Product differentiation

answer

manufacturers' use of minor differences in quality and features to try to differentiate between similar goods and services

question

Cartel

answer

Arrangement among groups of industrial businesses to reduce international competition by controlling the price, production, and distribution of goods.

question

Monopolistic competition

answer

Market situation in which a large number of sellers offer similar but slightly different products and each has some control over price

question

Interlocking directorate

answer

a board of directors, the majority of whose members also serve as the board of directors of a competing corporation

question

Antitrust legislation

answer

federal and state laws designed to prevent monopolies from forming and break up those already formed

question

Merger

answer

A combined company that results when one corporation buys more than half the stock of another corporation and, thus, controls the second corporation

question

Conglomerate

answer

Large corporations made up of smaller corporations dealing in unrelated businesses

question

Deregulation

answer

reduction of government regulation and control over business activity

question

Financing

answer

obtaining funds or money capital for buisness expansion

question

Cost-benefit analysis

answer

a financing process in which a business estimatses the cost of any action and compares it with the benefits of that action

question

Revenues

answer

total income from sales of output

question

Profits

answer

The money people have after they pay for all the materials, salaries, and other business expenses.

question

Debt financing

answer

raising money for a business through borrowing

question

Short-term financing

answer

money borrowed for less than 1 year

question

Intermediate-term financing

answer

money borrowed for 1 to 10 years

question

Long-term financing

answer

money borrowed for more than 10 years

question

Production

answer

process of changing resources into goods that satisfy the needs and wants of individuals and businesses

question

Consumer goods

answer

Goods produced for individuals and sold directly to the public to be used as they are

question

Mechanization

answer

combined labor of people and machines

question

Assembly line

answer

a production system in which the good being produced moves on a conveyor belt past workers who perform individual tasks in assembling it

question

Division of Labor

answer

the breaking down of a job into separate, smaller tasks to be performed individually

question

Automation

answer

production process in which machines do the work and people oversee them

question

Robotics

answer

sophisticated computer-controlled machinery that operates an assembly line

question

Marketing

answer

All the activities needed to move goods and services from the producer to the consumer

question

Consumer sovereignty

answer

the role of the consumer as the ruler of the market, determining what products will be produced

question

Utility

answer

the amount of satisfaction one gets from a good or service

question

Market research

answer

gathering and analyzing data about the types of goods and services that consumers want

question

Market survey

answer

information gathered by researchers about possible users of product based on such characteristics as age, gender, income, education and location

question

Test-marketing

answer

offering a product for sale in a small area for a limited time to see how well it sells before offering it nationally

question

The 5 P's of marketing

answer

Product, price, place, promotion, product life cycle

question

Price leadership

answer

practice of setting price close to those charged by other companies selling similiar products

question

Penetration pricing

answer

selling a new product at a low price to attract customers away from established products

question

Promotion

answer

use of advertising to inform consumers that a new or improved product or service is available and to persuade them to buy it

question

Direct-mail advertising

answer

type of promotion using a mailer that usually includes letter describing the product or serive and an order blank or application form

question

Product life-cycle

answer

series of stages that a product goes through from first introduction to complete withdrawal from the market

question

Channels of distribution

answer

routes by which goods are moved from producers to consumers

question

Wholesalers

answer

businesses that purchase large quantities of goods from producers for resale to other businesses

question

Retailers

answer

Businesses that sell consumer goods to the public

question

E-commerce

answer

a business transaction that occurs over an electronic network such as Internet

question

Civilian labor force

answer

men and women 16 years old and over who are either working or actively looking for a job

question

Blue-collar workers

answer

category of workers employed in crafts, manufacturing, and non-farm labor

question

White-collar workers

answer

category of workers employed in offices, sales, and professional positions

question

Service workers

answer

People who provide services directly to individuals

question

Unskilled workers

answer

people whose jobs require no specialized training

question

Semiskilled workers

answer

people whose jobs require some training, often using modern technology

question

Skilled workers

answer

people who have learned a trade or craft either through a vocational school or as an apprentice to an experienced worker.

question

Professionals

answer

highly educated individuals with college degrees and usually additional education or training

question

Minimum wage law

answer

federal law that sets the lowest legal hourly wage that may be paid for certain jobs

question

Labor union

answer

association of workers organized to improve wages and working conditions for its members

question

Strike

answer

deliberate work stoppage by workers to force an employer to give in to their demands

question

Craft union

answer

union made up of skilled workers in a specific trade or industry

question

Industrial union

answer

Union made up of all the workers in an industry regardless of job or skill level

question

Local union

answer

Members of a union in particular factory, company or geographic area

question

Closed shop

answer

a company that hires only union members

question

Union shop

answer

a company allowed to hire nonunion workers on the condition that they will join the union within a specified time

question

Agency shop

answer

company in which employees are required to pay union dues, but not required to join union

question

Right-to-work laws

answer

state laws forbidding unions from forcing workers to join and pay union dues

question

Collective bargaining

answer

Process in which workers negotiate as a group with employers

question

Cost-of-living-adjustment

answer

provision calling for an additional wage increase each year if the general level of prices rises

question

Mediation

answer

a neutral person tries to get both sides to reach an agreement during negotiations

question

Arbitration

answer

union and management submit the issues they cannot agree on to a third party for a final decision

question

Picketing

answer

action of strikers who walk in front of a workplace carrying signs that state their disagreement with the company

question

Boycott

answer

economic pressure exerted by unions urging the public not to purchase the goods or services produced by a company

question

Lockout

answer

situation that occurs when management prevents workers from returning to work until they agree to a new contract

question

Injunction

answer

court order preventing some activity

question

National income accounting

answer

measurement of the national economy's performance, dealing with the overall economy's income and output

question

Gross domestic product

answer

(GDP), the dollar amount of all final goods and services produced within a country's borders in a year

question

Net exports

answer

the value of a nation's exports minus the value of its imports

question

Depreciation

answer

Loss of value because of wear and tear to durable goods and capital goods

question

Net domestic product

answer

the value of a nation's total output (GDP) minus the total value lost through depreciation on machines and equipment

question

National income

answer

(NI) total income earned by everyone in the economy

question

Personal income

answer

(PI) total income that individuals receive before personal taxes are paid

question

Transfer payments

answer

welfare and other supplementary payments that a state or the federal government makes to individuals

question

Disposable personal income

answer

(DI) income remaining for people to spend or save after all taxes have been paid

question

Inflation

answer

prolonged rise in the general price level of goods and services

question

Purchasing power

answer

the real goods and services that money can buy; determines the value of money

question

Deflation

answer

Prolonged decline in the general price level of goods and services

question

Consumer price index

answer

(CPI) measure of the change in price over time of a specific group of goods and services used by the average household

question

Market basket

answer

representative group of goods and services used to compile the consumer price index

question

Base year

answer

year used as a point of comparison for other years in a series of statistics

question

Producer price index

answer

(PPI) measure of the change in price over time that United States producers charge for their goods and services

question

GDP price deflator

answer

price index that removes the effect of inflation from GDP so that the overall economy in one year can be compared to another year

question

Real GDP

answer

GDP that has been adjusted for inflation by applying the price deflator

question

Aggregate

answer

summation of all the individual parts of the economy

question

Aggregate demand

answer

total quantity of goods and services in the entire economy that all citizens will demand at any single time

question

Aggregate demand curve

answer

a graphed line showing the relationship between the aggregate quantity demanded and the average of all the prices as measured by the implicit GDP price deflator

question

Aggregate supply

answer

real domestic output of producers based on the rise and fall of the price level

question

Aggregate supply curve

answer

a graphed line showing the relationship between aggregate quantity suppled and the average of all prices as measured by the implicit GDP price deflator

question

Business fluctuations

answer

ups and downs in an economy

question

Business cycle

answer

irregular changes in the level of total output measured by real GDP

question

Peak/Boom

answer

Period of prosperity in a business cycle which economic activity is at its highest point

question

Contraction

answer

part of the business cycle during which economic activity is slowing down

question

Recession

answer

Part of the business cycle which the nation's output (real GDP) does not grow for at least 6 months

question

Depression

answer

Major slowdown of economic activity

question

Trough

answer

lowest point in the business cycle in which the downward spiral of the economy levels off

question

Expansion/Recovery

answer

part of the business cycle in which the economic activity slowly increases

question

Innovations

answer

inventions and new production techniques

question

Economic indicators

answer

statistics that measure variables in the economy

question

Leading indicators

answer

statistics that point to what will happen in the economy

question

Coincident indicators

answer

economic indicators that usually change at the same time as changes in the overall business activity

question

Lagging indicators

answer

indicators that seems to lag behind in chances in overall business activity

question

Money

answer

anything customarily used as a medium of exchange, a unit of accounting, and a store of value

question

Medium of exchange

answer

use of money in exchange for goods and services

question

Barter

answer

exchange of goods and services for other goods and services

question

Unit of accounting

answer

use of money as a yardstick for comparing the values of goods and services in relation to one another

question

Store of value

answer

use of money to store purchasing power for later use

question

Commodity money

answer

a medium of exchange such as cattle or gems that has value as a commodity or good aside from its value as money

question

Representative money

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money that is backed by an item of value such as gold or silver

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Fiat money

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money that has value because a government fiat, or order, has established it as acceptable for payment of debts

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Legal tender

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money that by law must be accepted for payment of public and private debts

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Overdraft checking

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checking account that allows a customer to write a check for more money than exists in his or her account

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Electronic funds transfer

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(EFT) system of putting onto computers all the banking functions that in the past were handled on paper

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Automated teller machine

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Unit that allows consumers to do their banking without the help of a teller

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Checking account

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account in which deposited money can be withdrawn at any time by writing a check

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Checkable deposits

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money deposited in a bank that can be withdrawn at any time by presenting a check

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Thrift institutions

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mutual savings bank, S&Ls, and credit unions that offer many of the same services as commercial banks

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Debit card

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devices used to make cashless purchases; money is electronically withdrawn from the consumer's checkable account and transferred directly to the store's bank account

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Near moneys

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Assets, such as savings accounts, that can be turned into money relatively easily and without the risk of loss of value

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M1

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narrowest definition of the money supply; consists of moneys that can be spent immediately and against which checks can be written

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M2

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broader definition of the money supply; includes all of M1, plus such near moneys as money market mutual funds balances, certificates of deposit, and Eurodollars

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Fed

answer

the Federal Reserve System created by Congress in 1913 as the nation's central banking organization

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Monetary policy

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policy that involves changing the rate of growth of the supply of money in circulation in order to affect the cost and availability of credit

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Federal open market committee

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12-member committee in the Federal Reserve System that meets 8 times a year to decide the course of action that the Fed should take to control the money supply

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Check clearing

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method by which a check that has been deposited in one institution is transferred to the issuer's depository institution

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Loose money policy

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monetary policy that makes credit inexpensive and abundant, possibly leading to inflation

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Tight money policy

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monetary policy that makes credit expense and in short supply in an effort to slow the economy

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Fractional reserve banking

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system in which only a fraction of the deposits in a bank is kept on hand, or in reserve; the remainder is available to lend

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Reserve requirements

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Regulations set by the Fed requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their Federal Reserve district bank

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Discount rate

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interest rate that the Fed charges on loans to member banks

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Prime rate

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rate of interest that banks charge on loans to their best business customers

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Federal funds rate

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Interest rate that banks charge each other on loans (usually overnight)

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Open-market operations

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buying and selling of United States securities by the Fed to affect the money supply

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Public-works projects

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Publicly used facilities, such as schools and highways, built by federal, state, or local governments with public money

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Medicare

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government program that provides health care for the aged

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Public goods

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goods or services that government supplies to its citizens' can be used by many individuals at the same time without reducing the benefit each person receives

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Income redistribution

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government activity that takes income from some people through taxation and uses it to help citizens in need

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Social insurance programs

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government programs that pay benefits to retired and disabled workers, their families, and the unemployed

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Social Security

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federal program that provides monthly payments to people who are retired or unable to work

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Worker's compensation

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government program that extends payments for medical care to workers injured on the job

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Public-assistance programs/welfare

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government program that makes payments to citizens based on need

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Supplemental Security Income

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federal programs that include food stamps and payments to the disabled and aged

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Temporary Assistance for Needy Families

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state-run program that provides assistance and work opportunities to needy families

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Medicaid

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state and federal public-assistance program that helps pay health care costs for low-income and disabled persons

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externalities

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economic side effects or by-products that affect an uninvolved third party; can be negative or positive

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Fiscal year

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year by which accounts are kept; for the federal government, October 1 to September 30 of the next year

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Budget deficit

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Situation when the amount of government spending exceeds its receipts during the fiscal year

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Deficit financing

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government policy of spending more money than it is able to bring in through revenues

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National debt

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total amount of outstanding debt for the federal government

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Budget surplus

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situation when the amount of government receipts are larger than its expenditures during the fiscal year

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Benefits-received principle

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system of taxation in which those who use a particular government service support it with taxes in proportion to the benefit they receive; those who do not use a service do not pay taxes for it

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Ability-to-pay principle

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principle of taxation in which those with higher incomes pay more taxes than those with lower incomes, regardless of the number of government services they use

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Proportional tax

answer

tax that takes the same percentage of all incomes; as income rises, the amount of tax also rises

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Progressive tax

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tax that takes a larger percentage of higher incomes than lower incomes; justified on the basis of the ability-to-pay principle

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Regressive tax

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tax that takes a larger percentage of lower incomes than of higher incomes

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Stabilization policies

answer

attempts by the federal government to keep the economy healthy; includes monetary and fiscal policies

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Unemployment rate

answer

percentage of people in the civilian labor force that is unemployed and actively looking for work

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Full employment

answer

condition of the economy when the unemployment rate is lower than a certain percentage established by economists' studies

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Underground economy

answer

transactions by people who do not follow federal and state laws with respect to reporting earnings

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Demand-pull inflation

answer

theory that prices rise as the result of excessive business and consumer demand' demand increases faster than total supply. resulting in shortages that lead to higher prices

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Stagflation

answer

combination of inflation and low economy activity

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Cost-push inflation

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theory that higher wages and profits push up prices

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Fiscal policy

answer

federal government's use of taxation and spending policies to affect overall business activity

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Circular flow of income

answer

economic model that pictures income as flowing continuously between businesses and consumers

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Monetarism

answer

theory that deals with the relationship between the amount of money the Fed places in circulation and the level of activity in the economy

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Monetarists

answer

supporters of the theory of monetarism. often linked with Milton Friedman

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Monetary rule

answer

monetarists' belief that the Fed should allow the money supply to grow at a smooth, consistent rate per year and not use monetary policy to stimulate or slow the economy

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time lags

answer

periods between the time fiscal policy is enacted and the time it becomes effective

question

The Game

answer

You lost :D

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