Dictionary - Economics
# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Delivery Price

Delivery price is the price at which the underlying commodity of a futures contract settles upon expiration of the contract. Upon the expiration of a futures contract, the underlying commodity is delivered to the holder in return for a predetermined price -- the delivery price. Read more


Microeconomics is a social science that examines the allocation of resources to produce goods and services, and the distribution of goods and services produced.In the modern era, this involves the study of markets and the consumers and suppliers who trade in them. Read more

80-20 Rule

The 80-20 rule, also known as the Pareto Principle, states that 80% of outcomes arise from 20% of inputs.The idea is applied in business and economics to identify and prioritize the most productive or problematic inputs to maximize value or minimize cost. Read more

A. Michael Spence

A.Michael Spence is an economist who won the 2001 Nobel Prize for his work in market-signaling theory. Read more

Abandonment Option

An abandonment option is a clause in a contract that permits either party to leave the contract before obligations have been fulfilled. An abandonment option gives either party participating in a contract the right to leave without having to fulfill obligations. Read more

Abnormal Spoilage

In the business world, abnormal spoilage refers to the unusual loss of goods or work in progress. Company XYZ is a restaurant chain that orders a lot of produce, which it keeps in walk-in refrigerators. Read more

Above Full-Employment Equilibrium

Above full-employment equilibrium occurs when a country's gross domestic product (GDP) is higher than normal. For example, let's say Country X's normal rate of GDP growth is 2% per year. Read more

Accelerated Cost Recovery System (ACRS)

The Accelerated Cost Recovery System (ACRS) is a depreciation method that assigns assets periods of cost recovery based on specific IRS criteria.Since 1986, the Modified Accelerated Cost Recovery System (MACRS) has been far more prevalent. Read more

Adam Smith

Adam Smith is one of the world's most famous economists.Modern capitalism owes its roots to Adam Smith and his Wealth of Nations, which many consider the single most important economic work in history. Read more

Aggregate Demand

Aggregate demand is the total demand for goods and services in an economy. Read more

Alan Greenspan

Alan Greenspan was the chairman of the Federal Reserve Board of Governors from 1987 to 2006. Alan Greenspan was born in 1926 in New York. Read more

Altman Z-Score

The Altman Z-Score (named after Edward Altman, the New York University professor who devised it) is a statistical tool used to measure the likelihood that a company will go bankrupt.Though Altman devised the Z-Score in the 1960s, the notion of trying to predict which companies would fail was far from new at that time. Read more

Anti-Takeover Statute

An anti-takeover statute is a law designed to deter companies from launching hostile takeovers of other companies. Anti-takeover statutes exist in some places in order to protect the autonomy and interests of companies incorporated in those states. Read more

Baby Bells

Baby bells refer to the telephone companies that were created after the U.S.government required AT&T to divest assets in 1984 as part of a settlement for violating antitrust laws. Read more

Baby Boomer

A baby boomer is a member of the generation born between 1946 and 1964. The term baby boom refers to the increase in births after the end of World War II. Read more

Baby Boomer Age Wave Theory

The baby boomer age wave theory, developed by economist Harry S.Dent, Jr., theorizes that the age of the baby boom generation can predict major changes in economic trends. Read more

Bad Bank

A bad bank is a new company created to buy poorly-performing assets from another bank. For example, let's assume that Bank XYZ has made an extraordinary number of loans to borrowers who can't pay them back. Read more


A bailout is financial help for ailing companies. Company XYZ is in the newspaper industry and has seen a dramatic downturn in its advertising sales. Read more

Balance of Payments (BOP)

The balance of payments (BOP) reflects all payments and obligations to foreigners vs.all payments and obligations received from foreigners. Read more

Balanced Budget

A balanced budget exists when a household's (or country's) revenues are equal to its expenses. For example, let's assume that John Doe and his wife Jane Doe earn $100,000 a year. Read more

Baltic Dry Index (BDI)

The Baltic Dry Index (BDI) is a leading economic indicator that measures demand for dry bulk shipping services worldwide relative to supply.  Every business day, researchers for the London-based Baltic Exchange survey prices of booking cargo around the world and compile the Baltic Dry Index. Read more

Bank for International Settlements (BIS)

Based in Basel, Switzerland, the Bank for International Settlements (BIS) acts as a bank for central banks around the world. The BIS's main role is setting capital adequacy requirements and ensuring capital adequacy, which is one of the biggest challenges among central banks. Read more

Bank Rate

Also called the federal discount rate, the bank rate is the interest rate at which a bank can borrow from the Federal Reserve.  To understand the bank rate, it is important to understand that banks derive income from making loans. Read more


A barter (or bartering) is an exchange between two parties using goods and services for payment instead of currency. The barter system enables two parties to exchange goods or services based on mutually perceived value. Read more

Basket of Goods

In economics, a basket of goods is a group of items used for price comparisons or other analytical purposes. The consumer price index (CPI) is the most common measure of price levels. Read more

Beige Book

The Beige Book is the informal name for the Federal Open Market Committee's (FOMC) ongoing reports titled Summary of Commentary on Current Economic Decisions by Federal Reserve District. The purpose of the Beige Book is to provide information to FOMC members about the economic changes and conditions occurring in each of the 12 Federal Reserve districts. Read more

Ben Bernanke

Ben S.Bernanke was the chairman of the United States Federal Reserve (the Fed) from 2006 to 2014. Read more

Big Box Store

A big box store is a large company that is more efficient but less specialized than other firms in a particular niche or industry. Wal-Mart is a classic example of a big box store. Read more

Black Market

A black market is the illegal purchase and sale of goods and services. Drug dealing is one of the most prominent black markets in the United States. Read more

Board of Governors

The Board of Governors is the decision-making body at the Federal Reserve. The Federal Reserve system is the United States' central bank. Read more

Break-Even Point

In accounting, economics, and business, the break-even point is the point at which cost equals revenue (indicating that there is neither profit nor loss).At this point in time, all expenses have been accounted for, so the product, investment, or business begins to generate profit. Read more

Bretton Woods Agreement

Under the Bretton Woods Agreement of 1944, the world's allied industrial countries established a fixed currency exchange rate based on the gold standard.    The Bretton Woods Agreement also led to the creation of the International Bank for Reconstruction and Development (what is now the World Bank) and the International Monetary Fund (IMF).The agreement's name comes from the New Hampshire site where the conference was held. Read more

Bureau of Labor Statistics (BLS)

The Bureau of Labor Statistics (BLS) of the U.S.Department of Labor is a Federal agency that measures and reports labor market activity, working conditions and price changes in the economy. Read more

Bureau of Public Debt (BPD)

The Bureau of Public Debt is responsible for borrowing the money needed to run the U.S.government. Read more

Business Cycle

The business cycle refers to an economy's periodic patterns of growth, recession, and recovery. An expanding economy is characterized by low unemployment, high productivity, and high consumer spending. Read more

Buyer's Market

A buyer's market exists when there are more sellers than buyers in the market for a certain good or service. Housing is a common place to find a buyer's market. Read more

Buying Power

In the financial world, the phrase "buying power" has two meanings.One is the amount of money a person can use to invest in securities (and that can include money the investor borrows in order to buy securities). Read more


Capital is anything a business uses to generate income.In simple terms, capital is the potential for any item to create wealth. Read more

Capital Account

A capital account is a national account that shows the changes in a nation's assets.These assets can be physical or financial. Read more

Capital Intensive

Capital intensive refers to the degree that a company must invest money in physical or financial assets in order to produce a profit. Airlines, auto manufacturers, and drilling operations are often considered capital-intensive businesses because they require large amounts of expensive equipment and raw materials to make their products. Read more


Capitalism is an economic and social system in which participants privately own the means of production -- called capital.Free market competition, not a central government or regulating body, dictates production levels and prices.  Under capitalism, prices and wages are determined by the forces of supply and demand. Read more


A cartel is a group of companies, countries or other entities that agree to work together to influence market prices by controlling the production and sale of a particular product. Cartels tend to spring from oligopolistic industries, where a few companies or countries generate the entire supply of a product. Read more

Category Killer

A category killer is a large, dominant company that is more efficient but less specialized than other merchants in a particular niche or industry. Wal-Mart is a classic example of a category killer. Read more

Caveat Emptor

Caveat emptor is Latin for let the buyer beware, meaning the buyer assumes the risk in a transaction. Garage sales are great examples of caveat emptor. Read more

Central Bank

A central bank is an institution responsible for determining the monetary policy of a nation or group of nations.  Exact duties vary by country, but generally a central bank's main goals are to maintain a stable currency, control inflation and maximize employment through the promotion of reasonable economic growth.Examples include the Federal Reserve Bank (U.S.), the European Central Bank (EU) and the Bank of Japan (Japan). Read more

Chapter 10

Chapter 10 (formally referred to as Chapter X) is a former portion of the bankruptcy code that dictated bankruptcy processes and procedures for companies and individuals. Chapter X was originally part of the Bankruptcy Act of 1898 and the subsequent Chandler Act of 1938. Read more


Collusion, also known as price rigging or price fixing,  occurs when several individuals and/or businesses agree to set the price for something.  For example, let’s assume that there are four major cable providers in the U.S.The four companies meet secretly and agree not to compete with one another for customers in certain geographic areas of the country. Read more

Command Economy

A command economy (also known as a “planned economy”) occurs when decisions about the production and allocation of all goods and services are made by one central government authority. Command economies are characterized by centralized control, forecasting, and pricing. Read more


Commerce is the exchange of goods, services or commodities on a large scale. Nearly every business transaction is a form of commerce: purchasing food at a restaurant, buying stocks on the stock market, selling goods in a store, drilling for oil, etc. Read more

Comparative Advantage

A firm's comparative advantage is its ability to produce a good or service at a lower opportunity cost than another entity. Famed economist David Ricardo first coined the term "comparative advantage" in the early 1800s. Read more

Constant-Price GDP

Also called real GDP, constant-price gross domestic product (GDP) is inflation-adjusted GDP. Gross domestic product (GDP) is the broadest quantitative measure of a nation's total economic activity. Read more

Consumer Confidence Index (CCI)

The Consumer Confidence Index (CCI) is an index based on the monthly Consumer Conference Board survey that measures consumer sentiment regarding current and future economic conditions.note that the CCI is not the same as the Consumer Sentiment Index published by the University of Michigan. Read more

Consumer Cyclical

Consumer cyclical refers to a stock or group of stocks that are affected by changes in the economic cycle. Consumer cyclicals perform well when the economy grows and suffer when the economy stagnates or shrinks. Read more

Consumer Durables

Consumer durables are a category of consumer products that don't have to be purchased frequently because they last for an extended period of time. Consumer goods are divided into two categories: durable goods and non-durable goods. Read more

Consumer Price Index (CPI)

The consumer price index (CPI) measures changes in consumer prices.The Bureau of Labor Statistics (BLS) calculates and publishes CPI data monthly. Read more

Consumer Staples

Consumer staples are household necessities -- products that most of us use on an everyday basis and would continue to use with little regard to their cost or the overall economy. Examples of consumer staples include food, drugs, beverages, tobacco, and basic household products. Read more

Cost Per Unit

Cost per unit is a measure of a company's cost to build or create one unit of product. For example, let's assume it costs Company XYZ $10,000 to purchase 5,000 widgets that it will resell in its retail outlets. Read more

Country Risk

Country risk is the risk that a foreign government will default on its bonds or other financial commitments.Country risk also refers to the broader notion of the degree to which political and economic unrest affect the securities of issuers doing business in a particular country. Read more

Credit Quality

Credit quality is a measure of an individual's or company's creditworthiness, which is ability to repay debt. A FICO score, which is created and calculated by the Fair Isaac Corporation, is a measure of an individual's credit quality. Read more

Critical Mass

Critical mass refers to the size a company needs to reach in order to efficiently and competitively participate in the market.This is also the size a company must attain in order to sustain growth and efficiency. Read more

Crowding Out Effect

The crowding out effect describes the idea that large volumes of government borrowing push up the real interest rate, making it difficult or close to impossible for individuals and small companies to obtain loans. The theory behind the crowding out effect assumes that governmental borrowing uses up a larger and larger proportion of the total supply of savings available for investment. Read more


Currency is a medium of exchange for goods or services within an economy. Currency can be either fiat or tied to an underlying asset. Read more

Current Portion of Long-Term Debt (CPLTD)

The current portion of long-term debt (CPLTD) is the portion of a company's long-term debt payments that are due in less than one year.  For example, let’s assume that XYZ Company borrows $10,000,000 from Bank ABC. Read more

Cyclical Industry

A cyclical industry is an industry whose performance (revenues, profits, etc.) is tied to the business cycle.Thus, when the economy is grows quickly, the industry does well and vice versa. Read more

Cyclical Unemployment

Cyclical unemployment is the fluctuating rate of unemployment resulting from swings in the business cycle. This type of unemployment increases during a recession and decreases during an expansion. Read more

Data Mining

Data mining refers to the systematic software analysis of groups of data in order to uncover previously unknown patterns and relationships. So called because of the manner in which it explores information, data mining is carried out by software applications which employ a variety of statistical and artificial intelligence methods to uncover hidden patterns and relationships among sets of data. Read more

David Ricardo

David Ricardo was an English classical economist and one-time member of the country's Parliament who lived from 1772 to 1823.He is the author of The Principles of Political Economy and Taxation and other books. Read more

Dead Presidents

In the finance world, dead presidents are slang for U.S.currency. Read more

Deadweight Loss

When supply and demand are out of equilibrium, the market inefficiency created and the societal cost is known as deadweight loss.When used in economics, deadweight loss will be applied to the deficiency that has occurred due to the inefficient allocation of economic resources. Read more


Decoupling refers to instances in which security prices behave contrary to normally-occurring correlations. Movements in the price of different securities may be directly or indirectly correlated. Read more

Defensive Company

A defensive company is a company that does well or at least remains stable during economic contractions and expansions. Defensive companies are most famous for their ability to weather economic dips, but it is important to note that they also tend to ignore economic upswings. Read more


A deficit occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets.A deficit is the opposite of a surplus. Read more

Deficit Spending

Deficit spending is spending that reduces or offsets a surplus.In the business world, the term often refers to situations where expenses exceed revenues, imports exceed exports, or liabilities exceed assets. Read more


Deflation describes the general decline in the prices of goods and services in an economy, which in turn increase the purchasing power of money.It is the opposite of inflation, but is not the same as disinflation (which is the slowing of inflation). Read more

Demand Elasticity

Demand elasticity is a measure of how sensitive the demand for a product or service is to changes in the price of that product or service.The formula for demand elasticity is: Elasticity = % Change in Quantity/% Change in Price Let's assume that when gas prices increase by 50%, gas purchases fall by 25%. Read more


Usually associated with currency, a denomination is the value specified on a monetary instrument. Denomination values are graduated and usually divisible by some common denominator (hence, 'denomination'). Read more


A depression is a sustained downturn in economic activity characterized by high unemployment, decreased output and reduced levels of trade.  Low levels of consumer confidence during times of depression generally result in a severe drop in consumer demand and spending.This leads companies to cut costs by reducing their workforces, resulting in high unemployment and even lower consumer confidence and spending. Read more


Deregulation occurs when there is a significant decrease or elimination of government regulation over an industry, market, or economy. The transportation industry is one of the most famous industries to feel the effects of deregulation. Read more

Direct Cost

A direct cost is any cost related to the production method of a good or service.It is the opposite of an indirect cost. Read more

Discount Rate

The discount rate, also known as the Fed discount rate, is the interest rate charged to commercial banks and other institutions on loans from a Federal Reserve bank.This process is a key tool of Federal Reserve monetary policy and an integral part of the Federal Reserve’s role in the broader financial system. Read more

Discount Window

The discount window is the method that banks use to borrow money from a central bank on a short-term basis, named after an actual teller window at the Federal Reserve where such transactions used to be carried out.The discount window is used only in financial emergencies, such as major stock market collapses or liquidity crises. Read more

Diseconomies of Scale

Diseconomies of scale lead the marginal cost of a product to increase as a company grows.This is the opposite of economies of scale which cause the marginal cost for a product to decrease as a result of efficiencies achieved as a company grows and can spread its fixed costs over a larger quantity of products/services offered.  As a firm grows, it seeks to reduce the marginal cost of its products, increasing efficiency as it increases production. Read more

Double-Dip Recession

A double-dip recession occurs when the economy experiences a recession followed by a brief recovery and then another period of recession. Recessions occur when the gross domestic product (GDP) declines for two consecutive quarters. Read more

Dow Jones Transportation Average (DJTA)

The Dow Jones Transportation Average (DJTA) is the most widely recognized gauge of the transportation sector.It is also the oldest index used today, even older than its more famous brother, the Dow Jones Industrial Average (DJIA). Read more

Dow Jones Utilities Average (DJUA)

The Dow Jones Utilities Average (DJUA) is the most widely cited utilities index in the United States and the most widely recognized gauge of the utilities sector. The Dow Jones Utilities Average is comprised of fifteen of the largest utilities companies in the U.S. Read more


A duopoly is a form of oligopoly occurring when two companies (or countries) control all or most of the market for a product or service. There are two kinds of duopolies. Read more

Durable Goods

Durable goods are a category of tangible (physical) products that last three years or longer.Typically, these goods are a bit more expensive because they tend to last for long periods of time. Read more

Easy Money

Easy money is a phrase that often refers to the presence of low interest rates.In the context of the Federal Reserve, easy money is a method of helping the economy expand by increasing the money supply. Read more


Econometricians are economists who use math and statistics to measure economic data. Econometricians measure things such as gross domestic product, inflation, or to predict changes in the economy. Read more


Econometrics is the use of math and statistics to measure economic data. Econometricians use econometrics to measure things such as gross domestic product, inflation, or to predict changes in the economy. Read more

Economic Blight

Economic blight occurs when an area of a town shows visible signs of age, disrepair, and crime. For many people, thinking about the "bad side of town" is to think about economic blight. Read more

Economic Exposure

Economic exposure is the risk that a company's cash flow, foreign investments, and earnings may suffer as a result of fluctuating foreign currency exchange rates. The extent to which a company may be affected by economic exposure depends very much on the company's specific industry and business interests. Read more

Economic Indicator

An economic indicator is an index or other data that suggests whether the economy is expanding or contracting. For example, the U.S. Read more

Economic Moat

An economic moat is a competitive advantage that is difficult to copy or emulate, thereby creating a barrier to competition from other firms.Common economic moats include patents, brand identity, technology, buying power and operational efficiency. Read more

Economic Profit

Economic profit is a measure of performance that compares net operating profit to total cost of capital. Economic profit is also referred to as economic value added (EVA), which is a trademarked concept originally devised by Stern Stewart & Co. Read more

Economic Recovery

An economic recovery is a period of economic expansion, typically after a recession. Let's assume that there has been a significant decline in industrial production, employment, and wholesale or retail trade. Read more

Economic Refugee

An economic refugee is a person who moves to another country in search of a higher standard of living. Let's say John Doe lives in Cyprus. Read more

Economic Rent

Economic rent is the minimum amount of money that an owner of land, labor or capital must receive in order to let someone else use that land, labor or capital. For example, your economic rent is the amount of money that makes you get out of bed in the morning. Read more

Economic Risk

Economic risk refers to the possibility that changes in macroeconomic conditions will negatively impact a company or investment.For instance, political instability or exchange rate fluctuations can impact losses or gains. Read more

Economic Stimulus

An economic stimulus occurs when a federal government attempts to use targeted monetary or fiscal policies to stimulate an economy (especially when it enters a recession or depression). Sometimes referred to as “priming the pump”, an economic stimulus is thought to revive a stagnant economy. Read more

Economic Tsunami

An economic tsunami is a set of circumstances that produce an event that triggers considerable distress in the financial markets and/or the economy. In the meteorology world, a tsunami is a wave or series of waves caused by the movement of a large body of water. Read more


Economics is the academic study of the production, distribution, and consumption of goods and services. Economics can be broken down into two main disciplines: macroeconomics and microeconomics. Read more

Economies of Scale

Economies of scale is a term that refers to the reduction of per-unit costs through an increase in production volume.This idea is also referred to as diminishing marginal cost. Read more

Economies of Scope

Economies of scope is a term that refers to the reduction of per-unit costs through the production of a wider variety of goods or services. Let's assume Company XYZ strictly manufactures vacuum cleaners. Read more


An economist is a social scientist devoted to the study of the relationship between human behavior and supply and demand. The study of economics is generally divided into two areas: microeconomics and macroeconomics. Read more


In its broadest sense, the economy is the organized system of human activity involved in the production, consumption, exchange, and distribution of goods and services. Derived from the Greek word oikonomos, meaning "one who manages a household," economy was not used in the modern sense of the economic system of a country or area until the nineteenth and twentieth centuries. Read more


Something is elastic when its price varies with the price of another item.It the business world, the term most often refers to how much the price of a good or service changes when the supply of that good or service changes. Read more


From examples of elastic goods to calculating elasticity, this definition contains everything you need to understand this financial term. Read more

Elasticity of Supply

The elasticity of supply, also known as price elasticity of supply, measures the responsiveness of the quantity supplied to a change in the price of a good, with all other factors remaining the same. The formula for elasticity of supply is: Elasticity of Supply = (% change in quantity supplied) / (% change in price) As demand for a good or product increases, the price will rise and the quantity supplied will increase in response. Read more

Emerging Market Economy

An emerging market economy describes a nation's economy that is progressing toward becoming more advanced, usually by means of rapid growth and industrialization.These countries experience an expanding role both in the world economy and on the political frontier. Read more

Employment Cost Index

The employment cost index, or ECI, is a quarterly report compiled by the Bureau of Labor Statistics within the U.S.Department of Labor that offers wage and benefit information and provides a leading indicator of potential inflation. Read more


Euro LIBOR is the interest rate at which banks borrow euros from other banks in the London interbank market. Euro LIBOR is essentially LIBOR denominated in Euros. Read more


A eurodollar is U.S.currency held in banks outside the U.S. Read more

Europe, Australasia, Far East (EAFE)

Discover the countries in EAFE, why EAFE is important to investors, and much more.  Read more

Excise Tax

Excise tax refers to an indirect type of taxation imposed on the manufacture, sale or use of certain types of goods and products. Excise taxes are commonly included in the price of a product, such as cigarettes or alcohol, as well as in the price of an activity, often gambling. Read more

Existing Home Sales

Existing home sales is an economic indicator released by the National Association of Realtors.The data reflect the number of homes that have previously been constructed (and therefore accounted for by the new home sales indicator) and are now being resold. Read more

Expansionary Policy

Expansionary policy, or expansionary monetary policy, is when the Federal Reserve uses tools at its disposal in order to increase the money supply for the purpose of stimulating or growing the economy. An expansionary policy is typically implemented by the Federal Reserve by enacting one or more of these tactics: Lowering the federal discount rate By lowering the discount rate, the fees it charges banks to borrow from it, the Fed seeks to lower overall interest rates, thereby lowering the cost of money and its availability. Read more

External Debt

External debt, otherwise known as "foreign debt," is the component of total debt held by creditors of foreign countries, i.e.non-residents of the debtor's country. Read more

Factors of Production

In economics, the term factors of production refers to land, labor, and capital: the three inputs that make all commerce possible.Some economists also include entrepreneurship a factor of production. Read more

Factory Orders

Factory orders are the dollar value of orders for goods from factories. The U.S. Read more

Fair Debt Collection Practices Act (FDCPA)

The Fair Debt Collection Practices Act (FDCPA) is a section of the consumer credit protection act that aims to promote fairness in the collection of consumer debts and provide a way for clarifying and challenging debt information to ensure its validity. The Fair Debt Collection Practices Act protects consumers’ rights in the context of debt collection. Read more

Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) contains well-known American labor law standards regarding minimum wage, overtime pay and child labor, among others. The FLSA is enforced by the U.S. Read more

Fair Market Value

Fair market value is the price at which a willing seller sells a good or service to a willing buyer. Let's assume John Doe wants to sell his house. Read more

Federal Discount Rate

The federal discount rate is the interest rate at which a bank can borrow from the Federal Reserve. To understand the federal discount rate, it is important to understand that banks derive income from making loans. Read more

Federal Funds Rate

The federal funds rate is the interest rate banks charge each other on loans used to meet reserve requirements. The federal funds rate is often confused with the discount rate, which is the interest rate the Federal Reserve charges on loans directly from the Federal Reserve Bank.But they are not the same. Read more

Federal Reserve Bank

Federal Reserve Bank refers to any of the 12 branches of the Federal Reserve System overseeing the implementation of U.S.monetary policy.  As the country's central banking authority, the Federal Reserve System operates in 12 designated regions (or districts) throughout the United States. Read more

Federal Reserve Board (FRB)

The Federal Reserve Board (FRB), officially called the Federal Reserve Board of Governors, is the Federal Reserve System's primary decision-making body. There are seven members on the FRB, each appointed to a 14-year term by the President of the United States with the advice and consent of the Senate. Read more

Federal Reserve Note

A Federal Reserve note is the formal name of U.S.currency. Read more

Federal Trade Commission (FTC)

The Federal Trade Commission (FTC) protects consumers and businesses from practices that can cause markets to become unfair and anti-competitive. The Federal Trade Commission is divided into three bureaus that have different regulation and protection responsibilities. Read more

Fiat Money

Fiat money refers to any currency lacking intrinsic value that is declared legal tender by a government.  As valid currency solely by virtue of a government declaration, fiat money is not backed by any commodity, such as gold, but only by the faith of the bearer.In this respect, unlike currencies backed by gold or silver, fiat money does not have any intrinsic value (e.g., paper money and much coinage). Read more

Financial Engineering

Financial engineering is the quantitative, technical development of financial strategies and products. Financial engineers design, create and implement new financial instruments, models and processes to solve problems in finance and take advantage of new financial opportunities. Read more

Fiscal Deficit

Fiscal deficits occur when a government's expenditures exceed its revenue. A deficit is the opposite of a surplus. Read more

Fiscal Policy

Fiscal policy refers to a government's spending and taxation policies intended to maintain economic stability, which is indicated by levels of unemployment, interest rates, prices and economic growth. A government is capable of directly affecting economic activity in response to fluctuations in macroeconomic growth. Read more

Fisher Effect

The Fisher Effect is an economic hypothesis stating that the real interest rate is equal to the nominal rate minus the expected rate of inflation. In the late 1930s, U.S. Read more

Flight to Quality

A flight to quality is the act of moving capital away from "risky" investments and toward "safer" investments due to uncertainty about the overall economy. Anything that increases uncertainty in the markets can cause a flight to quality . Read more

Floating Interest Rate

A floating interest rate is an interest rate that can change from time to time. Let's say you want to borrow $5,000 to start a business. Read more

Free Market

A free market is a type of economy with little to no interference from a central government.Instead, a free market is based on supply (from producers) and demand (from consumers).   The term free market is also referred to as laissez-faire (French for “leave to do”) economics. Read more

Free On Board (FOB)

Free on board (FOB) is a contractual term that refers to the requirement that the seller deliver goods at the seller's cost via a specific route to a destination designated by the buyer. To understand how FOB terms work, let's look at an example. Read more

Frictional Unemployment

Frictional unemployment refers to the portion of the unemployment rate that results from labor market turnovers.This unemployment is ongoing and includes job transitions and communication lags between employers and potential employees, people entering and exiting the labor force and from the constant creation and destruction of jobs. Read more

Frontier Market

Frontier market describes up-and-coming economies that tend to be smaller and less developed than emerging markets like China and India. Frontier markets have a poor population willing to work to thrust itself into a middle class and, with luck, they also have access to a deep cache of natural resources and an appetite for export dollars. Read more

Game Theory

Game theory is a tool used to analyze strategic behavior by taking into account how participants expect others to behave.Game theory is used to find the optimal outcome from a set of choices by analyzing the costs and benefits to each independent party as they compete with each other. Read more


GDP gap refers to the disparity between an economy's actual total output and its possible total output. A country's GDP gap is mathematically expressed in the following way and serves as an indicator of where an economy stands in the business cycle: Gap GDP = GDP Actual – GDP Potential Measured as an indication of the number of jobs in an economy (labor productivity) a positive gap value indicates an expansion. Read more

GDP Per Capita

GDP per capita is a country's gross domestic product (GDP) per person.Essentially, this measures the amount of goods and sales a country produced per person, on average. Read more

Generation Gap

A generation gap is a difference in philosophies between generations. The most famous generation gap is the baby boomers, many of whom came of age in the 1960s, and their parents, who grew up around the Great Depression and tended to have traditional values. Read more

Global Recession

A global recession occurs when global gross domestic product growth is 3% or less. The International Monetary Fund (IMF) identifies global recessions, which have some things in common with national recessions. Read more


Countries have built economic partnerships that include trade, investment, capital flow, labor migration, and technology.Globalization is a term used to describe the integration of national economies through these partnerships. Read more

Gold Standard

The gold standard is a monetary system in which the representative currency is based on a fixed amount of gold held by the central government. Paper currency is actually a "legal note," i.e. Read more

Golden Rule

The golden rule is very simple: treat people the way you want to be treated.In the business world, it also refers to fundamental principles of government spending: cover current spending with existing taxes and borrow only to fund investments that benefit more than one generation of citizens. Read more

Goldilocks Economy

A Goldilocks Economy is one which enjoys sustained economic growth and low inflation.  This balance is attractive to investors because it allows for a market-friendly monetary policy from the Federal Reserve Bank.  Market pundits look for ways to characterize the economic climate.  A bullish economy, with steep growth in market values and low losses due to inflation, denotes strong economic growth, though it may lead to rising inflation.   In contrast, a bearish economy is the opposite, with stagnant economic performance and inflation rates soaking up any gains.  In either extreme, the Federal Reserve acts to either cool off or heat up the economy, primarily by raising or lowering the official interest rates.  When there is a balance, i.e. Read more

Goods and Services Tax (GST)

A goods and services tax (GST) is simply a tax on goods and services for domestic consumption.This tax system is in place in about 160 countries, including Canada, India, Vietnam, Australia, United Kingdom, Spain, Italy, Brazil, and South Korea. Read more

Government Accountability Office (GAO)

The Government Accountability Office (GAO) investigates, with congressional approval, the federal government's spending. The GAO started in 1921, when the Budget and Accounting Act transferred the government's auditing and accounting functions away from the Treasury Department. Read more

Government Sponsored Enterprise (GSE)

In the US, government sponsored enterprises, or GSEs, are quasi-governmental, privately-held entities established to improve, and at times make possible, the flow of credit to specific sectors of the economy or to otherwise provide essential services to the public.  GSEs are established by Congress. Government sponsored enterprises have been established in key areas of the economy.  For example in the housing sector, Congress created the Federal Home Loan Bank in 1932, to act as a wholesale bank providing support for housing mortgages issued by private banks.  Today, the network of 12 Federal Home Loan Banks provides loans to local banks at preferred interbank lending rates to enhance commercial and mortgage bank liquidity.  In education, Congress established the Student Loan Marketing Association, known as Sallie Mae, to guarantee student loans issued by local financial institutions.   The Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, known as Freddie Mac, provide guarantees and low cost credit that allow housing loans. Read more


Greenback is a slang term for the U.S.dollar. Read more

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is a quantitative measure of how much an economy produces.It includes the monetary value of both goods and services within a specific nation’s borders. Read more

Gross National Product (GNP)

Gross national product (GNP) is the sum of all domestic and foreign output generated by citizens of a given country.It can be measured by spending or by income. Read more

Hard Landing

A hard landing refers to an abrupt downward shift in economic growth resulting from monetary policy. Inflation historically accompanies periods of economic expansion. Read more

Hard Money

Hard money is a broad term used in connection with currency and transfer payments. Hard money has two separate meanings. Read more

Harry Markowitz

Harry Markowitz is a famous economist who won the Nobel Prize in Economics in 1990. Born in Chicago in 1927, Markowitz earned his bachelor's degree in economics at the University of Chicago and then joined the RAND Corporation in 1952, where he worked on the optimization techniques and algorithms that would lead to his famous theory: the efficient frontier. Read more


A hawk is a person, usually in a politically oriented profession, who favors government efforts to control inflation or who favors reducing the federal budget deficit. Let's assume John Doe works for the presidential administration as an economic advisor. Read more

Healthcare Sector

The healthcare sector is the sector of the economy made up of companies that specialize in products and services related to health and medical care. The healthcare sector includes publicly-traded companies that power all dimensions of the healthcare industry. Read more

Herfindahl Index

Want to learn how to find the Herfindahl Index? Our expert content walks you through the finer points of HHI.  Read more

Housing Starts

Housing starts is a measure of new private homes built during a given month.  This statistic is viewed as a key economic indicator reflecting the state of the economy. Homes are usually purchased from a previous homeowner. Read more


Hyperinflation is a period of extremely high inflation. Imagine if $30,000 -- money that could buy you a car today -- was only enough to buy you dinner tomorrow. Read more

Implementation Lag

An implementation lag is the time elapsed between an adverse macroeconomic shock and an effort to counter the shock. Let's say the United States experiences a huge increase in unemployment and huge resulting decrease in home sales in January. Read more

Implied Warranty

An implied warranty is an unwritten guarantee that a product or service works as expected. An implied warranty is a lot like an assumption. Read more

Import Duty

In the tax and import/export world, an import duty (or customs duty) is money collected under a tariff. A duty is a federal tax on imports (or exports). Read more

In Specie

In specie is a Latin term describing the provision of an asset in its physical form rather than in the cash value of the asset. Let's say Company XYZ wants to purchase Company ABC for $10 million. Read more

Income Elasticity of Demand

Income elasticity of demand is a measure of how much demand for a good/service changes relative to a change in income, with all other factors remaining the same. The formula for income elasticity is: Income Elasticity = (% change in quantity demanded) / (% change in income) An example of a product with positive income elasticity could be Ferraris. Read more

Inefficient Market

In economic terms, an inefficient market is a market in which securities prices are random and not influenced by past events.The idea is also referred to as weak form efficient-market hypothesis or the random walk theory (coined by Princeton economics professor Burton G. Read more


Something is inelastic when its price does not vary with the price of another item.It the business world, the term most often refers to how little the price of a good or service changes when the supply of that good or service changes. Read more

Infant Industry Theory

Infant Industry Theory promotes an economic policy that protects young industries in less developed economies until they become established, financially stronger, and capable of withstanding competitive pressures. Just as an infant is defenseless and vulnerable upon its entry into the world, young or “infant” industries are weak and vulnerable to a variety of market challenges and economic pressures.  For example, they usually lack a skilled workforce, efficient production processes, experienced managers, and established sales channels and market share even in their own domestic markets. Read more

Inferior Good

An inferior good is a product for which demand goes down as income goes up. As opposed to demand for "normal goods," which goes up as income increases, demand for inferior goods goes down as income increases.  Consumers of inferior goods "trade up" to higher priced goods as soon as they can afford it.Transportation provides a good example. Read more


Inflation is the rate at which prices rise and purchasing power falls.It is why something that cost $1 in 1980 cost $2.37 in 2005. Read more

Initial Jobless Claims

Initial Jobless Claims is a report issued by the U.S.Department of Labor every Thursday at 8:30am EST.  The data in the Initial Jobless Claims report reflect how many people filed for unemployment in the previous week. Read more

Institute for Supply Management (ISM)

The Institute for Supply Management (ISM) is a professional association for individuals and companies with an interest in supply management. The ISM publishes two important monthly surveys, the Manufacturing ISM Report on Business and the Non-Manufacturing ISM Report on Business.  Both the Manufacturing and Non-Manufacturing ISM Reports include surveys of purchasing and supply executives around the country on topics such as the number of new orders they're placing, production levels, hiring/employment, supplier deliveries, inventories, prices, order backlogs, exports and imports. Read more

Interest Rate

An interest rate is the cost of borrowing money, or conversely, the income earned from lending money.Interest rates are expressed as percentage of the principal per period. Read more

International Monetary Fund (IMF)

The International Monetary Fund (IMF) is the central institution embodying the international monetary system and promotes balanced expansion of world trade, reduced trade restrictions, stable exchange rates, minimal trade imbalances, avoidance of currency devaluations, and the correction of balance-of-payment problems.The IMF's goal is to prevent and remedy international financial crises by encouraging countries to maintain sound economic policies. Read more

Invisible Hand

In The Theory of Moral Sentiments, Adam Smith theorized that as every individual intends to seek out his own gains, he is “led by an invisible hand to promote an end which was no part of his intention.”  What does the invisible hand of the marketplace do?Does it suggest that at all times, there is a higher influence that guides how free markets run? Read more

Irrational Exuberance

The phrase irrational exuberance was coined by Alan Greenspan, chairman of the Federal Reserve, in a December 5, 1996, speech to the American Enterprise Institute.In the speech, Greenspan asked, “How do we know when irrational exuberance has unduly escalated asset values which then become the subject of unexpected and prolonged contractions as they have in Japan over the past decade? Read more

J Curve

The J curve represents a hypothetical short-term increase in a country's trade deficit that occurs immediately following a decline in the value of its currency. When a country experiences a sustained decline in the value of its currency relative to its trading partners, its import volume (goods and services purchased from outside countries) temporarily exceeds its export volume (goods and services sold to outside countries). Read more

J-Curve Effect

The J-curve effect refers to a "J" shaped section of a time-series graph in which the curve falls into negative territory and then gradually rises to a higher level than before the decline. The J-curve effect is a phenomenon in which a period of negative or unfavorable returns is followed by a gradual recovery that stabilizes at a higher level than before the decline. Read more

Jackson Hole Economic Summit

The annual Jackson Hole Economic Summit focuses on prominent economic issues that face the U.S.along with the rest of the world. Read more

Jackson Hole Economic Symposium

The Jackson Hole Economic Symposium, held in Jackson Hole, Wyoming, is a conference focusing on important economic issues that face the United States and the rest of the world. The Jackson Hole Economic Symposium is also referred to as the Jackson Hole Economic Summit. Read more

Job Market

The job market is the group of individuals seeking employment within an economy. As with any market, there is a supply and a demand for employment opportunities that directly affects wage and salary levels. Read more

Job Openings and Labor Turnover Survey

The Job Openings and Labor Turnover Survey (JOLTS) is the name of a detailed report on the U.S.job market published each month by the Bureau of Labor Statistics. Read more

Jobless Claims

Jobless claims is a measure of the number of individuals who filed for state unemployment benefits.It is an important indicator of how many people are unemployed at a point in time. Read more

Jobless Recovery

A jobless recovery refers to a sustained economic upturn accompanied by persistent or increasing unemployment levels. The New York Times first used the term "jobless recovery" in the 1930s to express a span of time during which the economy experiences growth, but the employment level does not. Read more

Jobs Growth

Jobs growth is a U.S.economic indicator that represents the number of new jobs created in a given month. Read more

Joseph Effect

The Joseph Effect is a statistical measure that indicates whether certain price movements are part of a long-term trend. The Joseph effect is really a description of the Hurst exponent, which is a measure of how much a series of prices are correlated with each other. Read more

K-Percent Rule

The K-percent rule is a monetary theory that states that the Federal Reserve should grow the money supply by a set amount per year ("K percent").Economist Milton Friedman developed the theory. Read more

Keynsian Economics

Keynesian economics is a school of thought named after economist John Maynard Keynes. British economist John Maynard Keynes is one of the fathers of modern macroeconomic theory and is widely considered to be one of the three most important economists of all time, along with Adam Smith and Karl Marx. Read more

L-Shaped Recovery

An L-shaped recovery refers to substantial losses in economic growth followed by a period of stagnation.Represented graphically, GDP data looks like the letter "L." For example, suppose country ABC experiences a decline in gross domestic product (GDP) from $100 billion to $80 billion between 2002 and 2003. Read more

Labor Intensive

Labor intensive is used to describe any production process that requires higher labor input than capital input in terms of cost. The production of goods and services requires labor and capital in varying amounts, depending on the product. Read more

Labor Market Flexibility

Labor market flexibility is the degree to which a company is able to modify its labor force to maximize productivity. A company is constantly adjusting its labor force via variables like staff size, total productive hours, and wages. Read more

Labor Productivity

Labor productivity measures the hourly productive output for a country's economy during a period of time.  A country's labor productivity is a function of technological innovation, labor resources and capital investment.  The formula for labor productivity is:  Labor Productivity = Total Output / Total Productive Hours  Gross domestic product (GDP) is generally used as the measure of total output.For example, suppose a country's total output for 2010 was $5 trillion. Read more

Labor Theory of Value

The labor theory of value says that the value of a finished good correlates solely with the number of labor hours required to produce it. Economist Adam Smith, the founder of the idea of modern capitalism, first conceived of the labor theory of value in the second half of the 18th century -- the time of the industrial revolution. Read more

Labor Union

A labor union is an organization that advocates for workers' rights and benefits through collective bargaining. Labor unions represent workers in both the public and private sector. Read more

Laffer Curve

The Laffer curve is a graphic representation of the relationship between an increasing tax rate and a government's total revenues.The relationship suggests that revenues decline beyond a peak tax rate. Read more

Lagging Indicator

A lagging indicator is a financial gauge that becomes measurable only after an economic shift has taken place. There are certain economic indicators that rely on changes in productivity or economic growth. Read more

Laissez Faire

Laissez faire is a capitalist precept that states that market economies function at optimal efficiency in the absence of government regulation. The term laissez faire is French for "leave to do," or more accurately, "leave to be." It was first coined by French economic theorists Dr. Read more

Law of Large Numbers

The law of large numbers states that as additional units are added to a sample, the average of the sample converges to the average of the population. Applied to finance, the law of large numbers implies that the more a company grows, the harder it is for the company to sustain that percentage of growth.  For example, let's assume recently founded Company XYZ has a market capitalization of $10 million. Read more

Law of Supply

The law of supply is the microeconomic theory stating that all else being equal, as the price of a good or service increases, the number of goods or services offered will also increase.The law of supply states that as the price of an item goes up, and thus profit increases, suppliers will attempt to make more profits by increasing the amount produced. Read more

Leading Indicator

Leading indicators are measurable indexes that signal potential upcoming changes in trends, business conditions, and the economy.Policymakers and other economic experts use these forecasts and predictions to make wiser financial decisions.  Leading indicators are typically composed of a set of securities that are sensitive to economic fluctuations. Read more


Leakage occurs when money leaves an economy.In the investor relations world, leakage also refers to the unauthorized or unanticipated dissemination of information. Read more

Lender of Last Resort

The term "Lender of Last Resort" refers to financial institutions or individuals that provide credit and/or liquidity to other financial institutions and/or individuals who have exhausted their remaining alternatives for credit or liquidity. There are generally two types of lenders of last resort: (1) financial institutions that provide credit to other financial institutions that require credit to remain solvent for their depositors; (2) institutions or individuals providing credit to individuals, commonly referred to as retail lending. Read more


In the financial world, to liquidate something means to sell it for cash.Although this sounds harmless, in the corporate world the term often carries a connotation of failure, because it is most often used in discussions about Chapter 7 -- a section of U.S. Read more

Liquidity Trap

Liquidity trap describes the macroeconomic conditions under which interest rates cannot be pushed any lower, rendering monetary policy ineffective.  Named in reference to the associated overabundance of money held in depository savings accounts, a liquidity trap occurs upon the convergence of low interest rates and a widely-held perception of an imminent economic downturn.Consumers, consequently, choose to save their money in depository bank accounts rather than purchase debt securities out of concerns that a subsequent rise in interest rates will reduce the market value of their investment. Read more

Long-Run Average Total Cost (LRATC)

Long-run average total cost (LRATC) represents the average cost per unit of production over the long run.In this calculation, all inputs are considered to be variable, because, over the long term, no costs are considered fixed. Read more

Macro Accounting

Macro accounting, also called national accounting, is a method of calculating the economic activity of a country or region. In the United States, federal government agencies typically use macro accounting to calculate employment rates, inflation rates and many other statistics that indicate how the country's economy is faring. Read more

Macro Environment

A macro environment is a wide, broad set of economic conditions rather than the conditions in a specific sector or industry within an economy. The macro environment in the American economy, for example, revolves largely around the business cycle and includes trends in inflation, employment, gross domestic output or other factors that measure and encompass conditions throughout the whole economy. Read more

Macro Risk

Macro risk is the risk that the political activity in a country will affect the operations of foreign companies that do business in that country. For example, let's say the government of the country of Cyprus is facing a fiscal crisis and decides to seize a portion of all the money in bank accounts held in the country. Read more

Macroeconomic Factor

A macroeconomic factor is a financial characteristic, trend, or condition that applies to a broad aspect of an economy rather than a certain population.  Read more


Macroeconomics involves the study of aggregate factors such as employment, inflation, and gross domestic product, and evaluating how they influence the economy as a whole. The Great Depression and its resulting high unemployment rate greatly influenced the development of macroeconomics. Read more


Macromarketing describes how marketing affects an entire society's demand for goods and services. In many first-world countries, marketing is not just another occupation. Read more

Macroprudential Analysis

Macroprudential analysis is analysis of the stability of an economy's financial institutions. In the United States, stress tests are the most common example of macroprudential analysis. Read more

Magnet Employer

A magnet employer is an employer to which people are attracted or especially interested in working for. For example, let's say Company XYZ is located in Anywhere, USA. Read more

Maintenance Expenses

Maintenance expenses are the costs associated with keeping an asset in working order and good condition. For example, let's assume that Company XYZ is a restaurant chain. Read more

Make to Assemble (MTA)

Make to Assemble (MTA) is a manufacturing strategy whereby the manufacturer creates or obtains all of the components of its products but does not assemble the product until a customer places an order. For example, let's say Company XYZ manufactures tables. Read more


A mancession is a situation in which the employment rate of men is lower than the employment rate for women. Let's say the employment rate for women is 95%. Read more


A market is a location where buyers and sellers meet to exchange goods and services at prices determined by the forces of supply and demand. A market may be a physical location or a virtual one over a network (for example, the internet). Read more

Market Basket

A market basket is a group of items that simulate the overall price movements in a market. At an economic level, a market basket is a permanent set of goods and services that are bought and sold as staples in a functional economy. Read more

Market Cycles

Market cycles are the periods of growth and decline in a market, sector or industry. In a quantitative sense, market cycles are visible in price movements that rise, fall, and return to their point of origin. Read more

Market Disruption

A market disruption is a sharp, rapid weakening of market performance in response to external forces. A market disruption often occurs as a result of an event or group of events that are widely perceived as economically detrimental. Read more

Market Distortion

A market distortion occurs as a result of a government's involvement in a market through monetary or fiscal policies. Governments frequently intervene in a country's economy and implement policy measures. Read more

Market Dynamics

Market dynamics are the interaction of supply and demand as the basis for setting prices. A fundamental concept of macroeconomics is the relationship between supply and demand as the principle forces behind the price of goods and services. Read more

Market Economy

A market economy is structured to allow market forces to determine prices with little or no government involvement. In theory, a market economy's functions are based on fluctuations in supply and demand for specific goods and services across an entire market. Read more

Market Failure

A market failure occurs when the supply of a good or service is insufficient to meet demand.This results in an inefficient distribution of resources among market participants. Read more

Market Jitters

Market jitters refers to apprehension among buyers and sellers resulting in choppy and unpredictable market performance. Unfavorable news regarding economic indicators, earnings reports, interest rates, etc. Read more

Market Orientation

Market orientation focuses on providing products that respond to both the needs and wants of a target audience. A company using market orientation invests time researching current trends in a given market. Read more

Market Penetration

Market penetration is the percentage of a target market that consumes a product or service.Market penetration can also be a measure of one company's sales as a percentage of all sales for a product. Read more

Market Power

Market power refers to a single company's ability to control the market price of a good or service. The macroeconomic concept of perfect competition assumes that no one producer can set a price for the whole market. Read more

Market Price

Market price is the price of an asset or product as determined by supply and demand. In the broadest sense, an item's market price lies at the point of intersection between the available supply of the good or service and market demand for it. Read more

Market Saturation

Market saturation is the maximum sales volume for a product or service under current market conditions assuming a constant level of demand. When the number of units of a given product or service has leveled off, resulting in a decline in further sales, that product or service has reached its market saturation. Read more

Market Segment

A market segment is a discrete group of individuals who bear a number of similar characteristics. A market segment is characterized as a homogeneous population within a given market whose members display similar responses to certain stimuli and bear distinct social, cultural, and economic features. Read more

Market Segmentation Theory

Market segmentation theory posits that the behavior of short-term and long-term interest rates are mutually exclusive. Market segmentation theory suggests that the behavior of short-term interest rates is wholly unrelated to the behavior of long-term interest rates. Read more

Markowitz Efficient Set

The Markowitz efficient set, also called the efficient frontier, is a mathematical concept that reflects the combinations or portfolios that generate the maximum expected return for various levels of risk.In 1952, Harry Markowitz set the efficient frontier idea in motion when he published a formal portfolio selection model in The Journal of Finance. Read more

Mature Industry

A mature industry has passed the rapid growth stage and has an established pattern of market share, earnings, and profits. All industries pass through various stages of growth, stability and decline. Read more


The mean is the average of a series of numbers.  The formula for calculating a mean is: Mean = (X1 + X2 + X3 + ...+XN) / N where X1, X2, X3, XN are the values of the observations being averaged and N equals the number of observations Let's assume that you would like to find the mean price of Company XYZ for the last four years. Read more

Mean Reversion

Mean reversion is the theory that interest rates, security prices, or various economic indicators will, over time, return to their long-term averages after a significant short-term move. Mean reversion is a strategy practiced by many quantitative hedge funds and day traders, and can be a self fulfilling prophecy. Read more


Mercantilism is an economic system promoting the idea that government regulation of international trade leads to the creation of wealth to restore or increase domestic power. Read more

Mergers & Acquisitions (M&A)

Mergers & acquisitions (M&A) refer to the management, financing, and strategy involved with buying, selling, and combining companies. A merger or an acquisition usually starts out with a series of informal discussions between the boards of the companies, followed by formal negotiation, a letter of intent, due diligence, a purchase or merger agreement, and finally, the execution of the deal and the transfer of payment. Read more

Minimum Wage

Minimum wage is the lowest hourly amount an employer may legally pay an employee.In the United States, the amount varies from state to state. Read more

Minsky Moment

A Minsky moment refers to a sharp decline in prevailing market sentiment and economic productivity after a long period of widespread optimism. Times of robust economic growth, like that experienced by the U.S. Read more


Monetarism is a well-known macroeconomic school of thought developed by Milton Friedman. The Great Depression and its resulting high unemployment greatly influenced the development of macroeconomics. Read more

Monetary Policy

Monetary policy is the means by which the Federal Reserve manipulates the U.S.money supply in order to influence the U.S. Read more


Money is a medium of exchange for goods or services within an economy. Philosophically, anything can be money, but coins and paper notes are the most generally accepted forms. Read more


A monopoly is a market environment where there is only one provider of a certain economic good or service. For a true monopoly to be in effect, each of the following characteristics would typically be evident: A sole provider of a viable product or service. Read more

Nakahara Prize

The Nakahara Prize is an award from the Japanese government to Japanese economists under age 45 who have made significant contributions to the world of economics. The board of directors of the Japanese Economic Association determines who wins the Nakahara Prize, which was first awarded in 1995. Read more

Narrow Moat

Narrow moat refers to the size of a company's competitive advantage.The term is an adaptation of the term "economic moat." Long ago, castles were traditionally part city and part defensive fortress. Read more

Narrow Money

Narrow money is a colloquial term for the total of a country's physical currency plus demand deposits and other liquid assets held by the central bank.The economic term for narrow money is M1. Read more

Nash Equilibrium

In economics, a Nash equilibrium occurs when two companies in a duopoly react to each other's production changes until their prices reach an equilibrium.The term is named after John Nash, who is an American mathematician who won the Nobel Prize in Economics in 1994. Read more

National Accounting

National accounting, also called macro accounting, is a method of calculating the economic activity of a country or region. In the United States, federal government agencies typically use national accounting to calculate employment rates, inflation rates and many other statistics that indicate how the country's economy is faring. Read more

National Bureau of Economic Research (NBER)

The National Bureau of Economic Research (NBER) is a private, nonprofit, nonpartisan research organization that studies the economy. Founded in 1920, the NBER undertakes and distributes unbiased economic research to public policymakers, business professionals and the academic community. Read more

National Currency

A national currency is simply the currency issued by a country's central bank.Currency is a medium of exchange for goods or services within an economy. Read more

National Income Accounting

National income accounting is a government accounting system to measure economic activity. For example, national income accounting measures the revenues earned in the nation's companies, wages paid, or tax revenues. Read more

National Savings Rate

The national savings rate is the percentage of gross domestic product that households, governments and businesses save rather than spend. There are only two things to do with money: spend it or save it. Read more

Natural Unemployment

Natural unemployment is the level of unemployment always present in an economy as industries expand and contract, as technological advances occur, as new generations enter the labor force and as workers voluntarily search for better opportunities. The unemployment rate measures the percentage of employable people in a country's workforce who are over the age of 16 and who have either lost their jobs or have unsuccessfully sought jobs in the last month and are still actively seeking work. Read more

Negative Growth

In economics, negative growth usually refers to shrinking gross domestic product (GDP). For example, if the United States' GDP falls from $14.4 trillion to $14.1 trillion, we would say that the U.S. Read more

Net Borrowed Reserves

Net borrowed reserves are a measure of the difference between what a bank has borrowed from the Federal Reserve and the cash reserves it holds above the required minimum.The opposite of net borrowed reserves is free reserves. Read more

Net Debt Per Capita

Net debt per capita is a government's total debt (less cash on hand) per person.  The formula for net debt per capita is: Net Debt per Capita = (Short-Term Debt + Long-Term Debt - Cash and Cash Equivalents) / Population For example, let's assume that Country XYZ has $100 billion in short-term debt, $400 billion in long-term debt, $10 billion in cash and cash equivalents, and 250 million people.According to the formula, Country XYZ's net debt per capita is: Net Debt Per Capita = ($100 billion + $400 billion - $10 billion)/250,000,000 = $1,960 Net debt per capita is a measure of a government's ability to repay its debts if they were all due today. Read more

Net Domestic Product (NDP)

Net domestic product (NDP) represents the net book value of all goods and services produced within a nation's geographic borders over a specified period of time. Gross domestic product (GDP) is the broadest quantitative measure of a nation's total economic activity. Read more

Net Exporter

A net exporter is a country that sells more to other countries than it buys from other countries.Countries are often net exporters in some industries (natural gas, for example) but net importers in others. Read more

Net Exports

Net exports are the difference between a country's total value of exports and total value of imports.Depending on whether a country imports more goods or exports more goods, net exports can be a positive or negative value. Read more

Net Free Reserves

Net free reserves is a measure of how much cash a bank holds above the Federal Reserve's required minimum.The opposite of net free reserves is net borrowed reserves. Read more

Net Importer

A net importer is a country that buys more from other countries than it sells to other countries.Often, countries are net importers in some industries (natural gas, for example) but net exporters in others. Read more

Net Lending

Net lending is an economic measure of whether governments are either providing financial resources to other sectors of the economy or using resources from other sectors of the economy (the latter is called net borrowing). The formula for net lending is: Net Lending = Revenue - Expenditures Or, more precisely: Net Lending = (Net Savings + Net Capital Transfers) - (Value of Acquisitions - Disposed Nonfinancial Assets - Fixed Capital Used) In the simplest terms, if a government receives $1 trillion in revenue and has $250 billion in expenditures, it is a net lender of $750 billion. Read more

Net National Product (NNP)

Net national product (NNP) is the market value of a nation's goods and services minus depreciation (often referred to as capital consumption). The formula for NNP is: NNP = Market Value of Finished Goods + Market Value of Finished Services - Depreciation Alternatively, NNP can be calculated as: NNP = Gross National Product - Depreciation Let's assume Country XYZ's companies, citizens and entities produce $1 trillion worth of goods and $3 trillion worth of services this year. Read more

Net Taxes

In economics, net taxes are taxes on production less subsidies received.Alternatively, net taxes are taxes paid to the government less transfer payments. Read more

Neutrality of Money

The neutrality of money is a theory stating that changes in the money supply only affect prices and wages rather than overall economic productivity. For example, when the Federal Open Market Committee (an agency within the Federal Reserve) purchases U.S. Read more

New Economy

The new economy refers to the convergence of manufacturing, services and technologies to produce high value-added, technology-enabled, and adaptable industries. Industry trends have always adapted to changes in technologies, incorporating and often initiating changes to improve productivity, quality, and profitability. Read more

New Paradigm

A new paradigm is a new logical framework for understanding a situation.In the financial markets, a new paradigm refers to the shift in the underlying economic rules and factors that affect the markets. Read more

Non-GAAP Earnings

Non-GAAP earnings (GAAP stands for Generally Accepted Accounting Principles) are measures of profit that don't follow a standard calculation for companies and are not necessarily required in their disclosure.To properly understand non-GAAP earnings, you first need to know what GAAP earnings are and why they are important. Read more

Nonfarm Payrolls

Nonfarm payrolls is an economic indicator released by the Department of Labor on the first Monday of each month at 8:30am EST.The data reflect the change in nonfarm payrolls from the previous month. Read more

North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement (NAFTA) is an agreement among the United States, Canada and Mexico designed to remove tariff barriers between the three countries. NAFTA was implemented on January 1, 1994, and supersedes the U.S.-Canada Free-Trade Agreement (CFTA) that took effect on January 1, 1989. Read more


Obamanomics refers to the economic policies of former United States President Barack Obama. In general terms, the primary focus of Obamanomics was economic stimulation in the wake of recession. Read more

Obsolescence Risk

Obsolescence risk is the risk that a company's product or service will become obsolete or out of date. For example, consider the fax machine. Read more

Occupational Labor Mobility

Occupational labor mobility is the ease with which a workforce can switch industries, retrain for new jobs and transfer to other sectors. For example, consider ice delivery or typewriter repair. Read more


An offer is a communication of interest in buying or selling an asset.In other contexts, it might refer to the act of making something available for sale. Read more

Official Settlement Account

An official settlement account is an account that records transactions of foreign exchange reserves, bank deposits and gold at a central bank. For example, the Federal Reserve uses official settlement accounts to keep track of its transactions in gold, dollars or other assets with other countries' central banks. Read more

Official Staff Commentary

An official staff commentary is a set of written answers from the Federal Reserve or the Treasury department regarding various interpretations and regulatory guidance on a myriad of topics. The Federal Reserve provides official staff commentaries when addressing new regulations and interpretations of regulations and offering guidelines to consumers and institutions. Read more

Okun's Gap

Okun's gap occurs when a country's actual gross domestic product differs from its predicted gross domestic product when applying Okun's law. Named after economist Arthur Okun, Okun's law states that for every 1% increase in the employment rate, gross domestic product increases 3%. Read more

Okun's Law

Named after economist Arthur Okun, Okun's law states that for every 1% increase in the employment rate, gross domestic product increases 3%. Let's say the unemployment rate decreases by 2% (that is, employment increases by 2%). Read more

Old Economy

Old Economy describes an economy or even a group of industries that does not rely on technology or technological advancement.   For example, horse farms, bread baking, landscaping and prostitution are old economy industries. Read more


An oligopoly is an economic market whereby a small number of companies or countries generate and control the entire supply of a good or service. Let's assume that Company XYZ, Company ABC, and Company 123 produce 95% of the country's carrots. Read more


An oligopsony is a market in which only a few buyers purchase all of an industry's output. Let's assume that Company XYZ, Company ABC and Company 123 buy 95% of the country's carrots. Read more

Organization for Economic Cooperation and Development (OECD)

The Organization for Economic Cooperation and Development (OECD) is an international economic forum that pursues cooperative approaches to common issues affecting individual members as well as the global community. The OECD was formed in 1948 as part of the plan to rebuild Europe following the Second World War, known as the Marshall Plan. Read more

Overnight Rate

The overnight rate is the interest rate banks charge each other on loans for meeting reserve requirements.The overnight rate is frequently confused with the discount rate, which is the interest rate the Federal Reserve charges on loans from the Federal Reserve Bank, but they are different rates. Read more

Pale Recession

A pale recession is a term describing a recession that does not have much impact on an economy. Former Federal Reserve Chairman Alan Greenspan coined this term in a 2008 television interview. Read more

Paper Money

Paper money is a medium of exchange for goods or services within an economy.It is printed on paper, rather than in coin form. Read more

Paradox of Thrift

The paradox of thrift is an economic theory that states that the more people save, the less they spend and thus the less they stimulate the economy. Developed by economist John Maynard Keynes, the paradox of thrift works this way: Assume everybody receives $1,000 of income. Read more

Participation Rate

Participation rate usually refers to the portion of the economy's working age population that is in the civilian labor market. The participation rate measures the number of people who are in the labor force who are working, willing to work, or are actively looking for work.  It is the ratio between the active labor force and the overall size of the potential labor force (i.e. Read more

Per Capita

Per capita is a measure of a quantity per person. For example, per capita GDP is a country’s gross domestic product (GDP) per person. Read more

Performance Bonus

Performance bonuses are intended to be motivational tools that encourage employees to keep goals in mind and take action in their everyday work to help the company achieve those goals.It is important to note, however, that performance bonuses are generally taxed as income, which means a $10,000 bonus can easily become a $6,000 bonus if the recipient's federal and state tax rates total 40%. Read more

Permanent Open Market Operations (POMO)

Permanent open market operations (POMO) are used by the Federal Reserve to either add to or drain the capital reserves available in the banking system. If the Federal Reserve wants to increase the amount of capital available to the banking system, it will buy Treasury securities from banks in exchange for Federal Reserve Notes (aka, cash dollars). Read more

Personal Consumption Expenditures (PCE)

Personal Consumption Expenditures (PCE), or the PCE price index, is a statistic compiled and released quarterly by the U.S.Bureau of Economic Analysis (BEA) that synthesizes a host of data, chief among them the U.S. Read more

Personal Income and Outlay Report

The Personal Income and Outlay report is compiled by the U.S.Department of Commerce. Read more

Phillips Curve

The Phillips curve refers to the theory that unemployment rates relate inversely to inflation rates. Proposed by British economist A. Read more


A plutocracy is a system of government where the wealthiest people in a country rule or possess the power, and thus govern directly or indirectly.Plutocracy is often linked to the term “dynastic wealth.”  A plutocracy may not be the result of a planned system of government. Read more

Predictive Indicator

A predictive indicator is a ratio, index, report or other measurement that signals a company or market's direction in advance.  The business cycle has highs and lows.That's why predicting what's around the corner is one of the best (but most difficult) ways to protect and grow portfolios. Read more

Price Ceiling

A price ceiling is the maximum price a seller can legally charge a buyer for a good or service.Regulators usually set price ceilings. Read more

Price Creep

Price creep refers to a gradual increase in the price of a good or service. Price creep usually occurs because production costs have increased. Read more

Price Discovery

Price discovery refers to the act of determining the proper price of a security, commodity, or good or service by studying market supply and demand and other factors associated with transactions. In a simple sense, price discovery involves finding where supply and demand meet. Read more

Price Discrimination

Price discrimination is the act of charging different customers different prices for the same good or service. A common example of price discrimination is ladies' night: men must pay full price for drinks at the bar, but women pay only 50% of the regular price. Read more

Price Elasticity of Demand (PED)

Price elasticity of demand (PED) measures the change in the demand for a product or service in response to a change in its price.With most goods, an increase in price leads to a decrease in demand – and a decrease in price leads to an increase in demand. Read more

Price Improvement

Price improvement is the often unexpected event of obtaining a better bid or ask price than the price quoted at the time the buy or sell order is made. For example, assume you own 1,000 shares of Company XYZ. Read more

Price Inflation

Price inflation is simply an increase in the price of a good or service over time. The consumer price index (CPI) is the most common measure of price inflation. Read more

Price Leadership

Price leadership is the act of setting the price for a good or service in an industry. Let's assume that Company XYZ manufactures windshield wipers. Read more

Price Maker

In economics, a price maker is a monopolistic company that can dictate the prices of its goods because there are no substitutes for it.In trading, a price maker is a stockholder who controls a large number of shares and is able to affect the stock's price. Read more

Price Rigging

Also known as collusion or price fixing, price rigging occurs when a group of people or businesses agree to set the price for something.  In the stock market, traders with inside information might conspire to work together on trades in order to benefit from the inside information.Likewise, sellers might inflate the price of an asset to realize more profits. Read more

Price Sensitivity

In consumer behavior, price sensitivity (also called the elasticity of demand) is the degree to which price affects the sales of a product or service. Thus, the formula for price sensitivity is:Price Sensitivity = % Change in Quantity Purchased/% Change in Price In the bond world, duration is a measure of a bond’s price sensitivity to changes in interest rates. Read more

Price Stickiness

Price stickiness refers to the price persistence of a good, service, security or economic measure (like wages) despite changing economic conditions. Prices can be sticky on the way up or sticky on the way down, meaning that they move in one direction easily but require great effort to move in the other direction.  Wages are a good example of price stickiness. Read more

Price War

A price war is an event whereby two or more companies continually lower prices to undercut each other. Airline companies are famous for their price wars. Read more

Price-Level Targeting

Price-level targeting is an economic strategy whereby a central bank tries to reestablish an overall price level rather than reestablish a particular inflation rate. For example, let's assume that inflation is usually 4% per year in the United States, but then it drops to 1% per year. Read more

Priced Out

"Priced out" refers to something being too expensive.Alternatively, priced out refers to the adjustment in a security's market price in response to new information. Read more

Pricing Power

Pricing power is the effect the price of a good or service has on the demand for that good or service. For example, a company that manufactures a pill that cures cancer has a lot of pricing power: the demand for the pill will probably change very little if the price goes up. Read more

Primary Downtrend

When financial assets and markets -- as with the broader economy -- fall steadily for an extended period of time, it is known as a primary downtrend, or "bear market." A primary downtrend is when each successive decline of the primary trend carries the market to lower lows and lower highs, lasting from several months to several years.This is illustrated in Figure 1 below. Read more

Primary Uptrend

When financial assets and markets -- as with the broader economy -- move in an upward direction for extended periods of time, it is known as a primary uptrend, or “bull market.” A primary uptrend is when each successive advance of the primary trend peaks and troughs higher than the one preceding it, and can last from several months to several years.This is illustrated in Figure 1 below. Read more

Pro Bono

Pro bono refers to any work or service that someone provides free of charge for the common good. From the Latin phrase "pro bono publico" meaning "for the public good," the motivation behind pro bono work is to benefit society as opposed to making money. Read more

Producer Price Index (PPI)

The Producer Price Index (PPI) is used to measure the change over time of the average price of goods produced domestically. The producer price index consists of a weighted index of goods prices at wholesale. Read more


Productivity refers to the measure of output (e.g.products) from a production process per unit of input (e.g. Read more

Purchasing Power

Purchasing power is a phrase to describe the quantity of goods or services that a dollar can buy.A decrease in purchasing power is called inflation. Read more

Quantitative Easing (QE)

Quantitative easing (sometimes abbreviated "QE") is a strategy used by a central bank -- like the Federal Reserve -- to add more money to that which is in circulation. The premise (which is largely theoretical and untested) is that if money supply is increased faster than the growth rate of Gross Domestic Product (GDP), the economy will grow. To understand the rationale behind the strategy, it helps to look at the basic relationship among GDP, money supply and the velocity of money. Read more

Quantity Theory of Money

The quantity theory of money argues that the size of the money supply influences the price of goods. The quantity theory of money (sometimes called QTM) says that prices rise when there is more money in an economy and they fall when there is less money in an economy. Read more

Quarterly Services Survey

The Quarterly Services Survey is an estimate of the operating revenue by customer class for communications firms, IT firms, hospitals and nursing services providers.   The Census Bureau administers the Quarterly Services Survey every quarter for companies in NAICS sectors 51, 54 and 56, and subsectors 622 and 623. Read more


In the finance world, raider is short for corporate raider, which is a person or entity that purchases a company for the sole purpose of selling off its assets. Raiders are attracted to companies whose assets have book values that are higher than their market capitalizations. Read more


Reaganomics is a reference to U.S.president Ronald Reagan's economic policies between 1981 and 1989. Read more

Real GDP

Real gross domestic product, or real GDP, is a measure of the value of all goods and services produced by an economy in a period.Because the value is adjusted for inflation it can separate out the effects of changes in price levels and can provide a more detailed measure of economic productivity growth. Read more

Real Income

Real income is inflation-adjusted income or wages. For example, let's say John Doe works for Company XYZ. Read more


A recession is two consecutive quarters of declining gross domestic product (GDP) Let's assume that there has been a significant decline in industrial production, employment, and wholesale or retail trade.These things may cause GDP to decline for a three-month period (a quarter). Read more

Recession Resistant

A stock or other investment is recession resistant when it tends to rise in value when the economy falters (and the markets falter with it).Recession-resistant investments are usually countercyclical, meaning they tend to move in opposition to the overall business cycle. Read more

Regulation Fair Disclosure (Reg FD)

Regulation Fair Disclosure (Reg FD) requires all publicly traded companies to disclose material information to all investors simultaneously. The Securities and Exchange Commission (SEC) issued a ruling in 2000 requiring publicly traded companies to disclose important information pertaining to the business finances, market, competition, and principals (i.e. Read more

Reserve Ratio

The reserve ratio is the percentage of deposits that the Federal Reserve requires a bank to keep on hand at a Federal Reserve Bank. For example, let's assume that Bank XYZ has $400 million in deposits. Read more

Reserve Requirements

Reserve requirements are Federal Reserve rules that require banks and other financial institutions to keep a strict percentage of their deposits on reserve at a Federal Reserve bank.The Federal Reserve determines the appropriate percentage. Read more


Revaluation refers to the adjustment of the exchange rate of a country's currency. In countries with fixed exchange rate rates, the central bank (i.e. Read more


A run occurs when a flood of depositors withdraw their funds from a bank within a short time frame. It’s important to remember one thing about banks: They don’t keep your money in cash in a vault. Read more

Sacrifice Ratio

A sacrifice ratio measures the costs of lower economic production as a percentage of the change in inflation. The formula for the sacrifice ratio is: Sacrifice Ratio = Dollar Cost of Production Losses/Percentage Change in Inflation Let's say the economy is slowing and factory output has slowed down as a result. Read more

Sales Tax

Sales tax is a consumption tax levied on goods and services purchased at the retail level, paid by the consumer and submitted by the retailer to the governing tax authority. In the United States, the sales tax is imposed on retail items. Read more

Sector Rotation

Sector rotation is a strategy based on moving investments across business sectors to take advantage of cyclical trends in the overall economy. The basic idea behind sector rotation is that the economy operates in cycles. Read more

Semi-Variable Cost

A semi-variable cost has characteristics of both fixed costs and variable costs once a specific level of output is surpassed. Semi-variable costs remain fixed up to a particular production volume. Read more

Series 82

The Series 82 is an exam for individuals who want to be licensed to do primary offerings of private placements. The Financial Industry Regulatory Authority (FINRA) administers the Series 82 exam as mandated by the Gramm-Leach-Bliley Act of 1999. Read more

Shadow Open Market Committee (SOMC)

The Shadow Open Market Committee (SOMC) is a group of economists that provides critical analysis of Federal Open Market Committee (FOMC) decisions. Founded by two economists from Carnegie Mellon University and the University of Rochester, the Shadow Open Market Committee (SOMC) analyzes and critiques the monetary policy and decisions of the Federal Open Market Committee (FOMC). Read more

Stock Market Crash of 1929

The stock market crash of 1929 is the most famous stock market crash of all time.On just one day (October 24, 1929), panicked sellers traded nearly 13 million shares on the New York Stock Exchange (more than three times the normal volume at the time), and investors suffered $5 billion in losses. Read more

Stock Market Crash of 1987

The stock market crash of 1987, also called Black Monday, refers to the 509-point fall in the Dow Jones Industrial Average on October 19, 1987, one of the worst days in the average's history.  Black Monday is perhaps the most famous trading day in Wall Street history. Read more

Strong-Form Efficiency

Strong-form efficiency is a component of the random walk theory and states that market and securities prices are not random and are influenced by past events.Strong-form efficiency is the opposite of weak form efficiency. Read more

Structural Unemployment

Structural unemployment is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market. Structurally unemployed people usually have skills that are not needed in the market or have a specialized background or experience that cannot be used in the current market. Read more

Tangible Common Equity Ratio

The formula for tangible common equity ratio is: Tangible Common Equity Ratio = (Common Equity - Intangible Assets)/Tangible Assets Some analysts also subtract preferred stock from common equity when calculating this ratio. Let's say Company XYZ has $40 million of assets and $25 million of liabilities. Read more

Tax Incidence

Tax incidence is a term that describes whether producers or consumers bear the burden of a new tax. For example, let's assume that Congress passes a bill that places a $0.10 per ounce tax on potato chips in an effort to curb obesity in the United States. Read more

Tax Treaty

A tax treaty is an agreement between two countries regarding how they tax each other's citizens. In the U.S., residents of foreign countries that have tax treaties with the U.S. Read more

Tax Wedge

A tax wedge is the difference between gross income and after-tax income.In economics, it refers to the broader financial effects of a tax on a sector of the market. Read more

Taxpayer Relief Act of 1997

The Taxpayer Relief Act was created in 1997 and signed by President Bill Clinton.It represented a major overhaul of the U.S. Read more

Time Deposit

A time deposit is an interest-bearing deposit held by a bank or financial institution for a fixed term whereby the depositor can only withdraw the funds after giving notice. Time deposits generally refer to savings accounts or certificates of deposit, and banks and financial institutions usually require 30 days notice for withdrawal of these deposits. Read more

Trade Balance

The trade balance, also known as the "balance of trade (BOT)", is the calculation of a country's exports minus its imports. When a country imports more than it exports, the resulting negative number is called a trade deficit. Read more

Trade Bloc

A trade bloc (or trading bloc) is a type of agreement between governments where barriers to international trade are eliminated or reduced between participating nations/regions.  Reducing or eliminating barriers (such as tariffs and non-tariffs) allows members within the agreement to trade amongst each other more easily and freely.The point is also to establish guidelines when trading with non-members, which can have an impact on global trade patterns. Read more

Trade Deficit

When the value of a country's imports exceeds the value of its exports, the resulting negative number is called a trade deficit. Balance of trade (BOT; also called the "trade balance") is a measure of a country's exports minus its imports. Read more

Trade Surplus

When the value of a country's exports exceeds the value of its imports, the resulting positive number is called a trade surplus. First, let's back up and define another important term. Read more


Treasuries refer to all the tradable and negotiable debt obligations issued by a country's government.Broadly speaking, when an investor is referring to "Treasuries," he or she is referring to U.S. Read more

Treasury Market

The Treasury market is where the United States government raises money by issuing debt.The U.S. Read more

Trickle Down Theory

Trickle down theory suggests that a policy of tax cuts and other financial benefits to businesses and rich individuals will indirectly benefit the broader and poor population. The basic principle of trickle down theory is that if top income earners have more money, they will invest their money in businesses that will produce goods at lower prices and employ more people. Read more

U.S. Department of the Treasury

The United States Department of the Treasury protects and manages many American economic and financial systems.The Secretary of the Treasury is the Chief Financial Officer of the U.S. Read more


Underemployment occurs when one does not have a job that is full-time or that reflects his or her training and financial needs.It is not the same as unemployment, which is the percentage of employable people in a country’s workforce who are over the age of 16 and who have either lost their jobs or unsuccessfully sought jobs in the last month and are actively seeking work. Read more


Unemployment occurs when one does not have a job.In the financial world, the term is often short for unemployment rate, which is the percentage of employable people in a country’s workforce who are over the age of 16 and actively seeking work. Read more

Unemployment Rate

The unemployment rate measures the percentage of employable people in a country's workforce who are over the age of 16 and who have either lost their jobs or have unsuccessfully sought jobs in the last month and are still actively seeking work.The formula for unemployment rate is: Unemployment Rate = Number of Unemployed / Total Labor Force In the U.S., the Bureau of Labor Statistics reports the unemployment rate in its Employment Situation report, which is released on the first Friday of each month at 8:30 AM EST. Read more

Universal Banking

Universal banking refers to the practice of offering clients retail banking as well as investment services. Investment services and retail banking services (savings and checking accounts, loans, mortgages, etc.) have customarily been housed in separate banking institutions: investment banks and retail banks, respectively. Read more

Value Added Tax (VAT)

VAT is the most common type of consumption tax and currently used in more than 160 countries, including each member of the EU.The notable exception to this rule is the US.  For products or services, VAT is collected on a product’s value as it moves through production. Read more

Veblen Good

A Veblen good is a good or service whose demand increases when its price increases.The term is named after economist Thorstein Veblen. Read more

Velocity of Money

The velocity of money is the average frequency with which a unit of money is spent in an economy. For example, assume a very small economy that has a money supply of $100 and only two people. Read more

Vernon L. Smith

Vernon L.Smith is an American economist who won the Nobel Prize for Economics in 2002. Read more

Vladimir Lenin

Vladimir Illyic Ulyanov, also known as Vladimir Lenin, was the first leader of the Soviet Union and a key player in its October Revolution. Born in 1870 as Vladimir Ulyanov, Lenin's revolutionary roots date to early in his life. Read more

Voodoo Economics

Also called “Reaganomics,” voodoo economics is the nickname for the hallmark economic policy of Ronald Reagan, the 40th President of the United States (1981-1989), who was trying to stimulate an economy that lay stagnant after the Jimmy Carter years. The program, which rolled out in 1981 and was famously dubbed "voodoo economics" by George H.W. Read more

W-Shaped Recovery

A W-shaped recovery refers to two consecutive cycles of economic decline and growth that graphically resemble the letter "W." A W-shaped recovery graphically expresses what is frequently termed a "double-dip recession." In a W-shaped recovery, the first phase of economic expansion follow a recession does not last, and the economy falls back into recession relatively soon thereafter.However, the second recovery, shown as the right upward stroke of the W, does gain traction and long-term economic expansion persists. Read more

Wage Execution

Also called garnishment, a wage execution is a process under which money owed or paid to a borrower is given to a creditor instead. Let's say John Doe has stopped paying child support to his ex-wife. Read more

Wage-Price Spiral

Also called cost-push inflation, a wage-price spiral is an economic term that describes how prices increase when wages increase. The general idea behind a wage-price spiral is a simple one of supply and demand. Read more

Wage-Push Inflation

Also called cost-push inflation or a wage-price spiral, wage-push inflation is an economic term that describes how prices increase when wages increase. The general idea behind a wage-push inflation is a simple one of supply and demand. Read more

Waiting Period

The waiting period refers to the time period between a company filing a registration statement with the US Securities and Exchange Commission (SEC) and the SEC declaring that statement to be effective.This is also referred to as the "quiet period." Under the SEC rules, once a company makes its SEC registration filing for its initial public offering, it must not release information about its activities or related parties to the public until the SEC approves the registration for the offering.  The SEC interprets this rule broadly, even including board members, management, and employees talking about the company. Read more

Waiver of Subrogation

A waiver of subrogation prevents an insurer from seeking payments from third parties that cause losses to the person or business it is insuring. For example, let's say ABC Insurance sells a property insurance policy to 123 Shopping Center. Read more

Wall Street

Wall Street is the name used to describe the place in New York City where much of the United States' financial industry is concentrated.The name "Wall Street" is also used frequently used to describe the financial services industry, generally. Read more

Walmart Effect

The Walmart effect refers to the economic impact of a large discount retailer on a local market.Named after the large discount retailer, it is used to describe the crowding out and shuttering of smaller, local businesses that attempt to operate in the same market as a big box store. Read more

Walras's Law

Walras's law is the concept that a surplus in one market indicates the presence of a shortage in another. In 1844, neoclassical French economist Leon Walras posited that the existing markets of the world economy are predisposed toward equilibrium between supply and demand. Read more

War Economy

A war economy centers on producing goods and services that support war efforts. For example, if Country X spends most of its tax dollars on defense and/or uses most of the proceeds from borrowing money for maintaining military and defense efforts, Country X may be a war economy compared with, say, Country Y, which spends most of its tax revenue and borrowed money on infrastructure and domestic programs. Read more

Weak Dollar

A weak dollar is used to describe the United States' currency decreasing in value relative to other currencies. The dollar's value is fluctuating all the time. Read more

Weak Form Efficiency

The random walk theory states that market and securities prices are random and not influenced by past events.The idea is also referred to as weak form efficiency or the weak form efficient-market hypothesis. Read more

World Trade Organization (WTO)

The World Trade Organization (WTO) establishes rules of trade among its member nations.To this end, the WTO also handles trade disputes, monitors trade policies, provides technical assistance for developing countries and cooperates with other international trade organizations.The WTO was created on January 1, 1995, and is headquartered in Geneva, Switzerland. Read more

Year to Date (YTD)

Year to date (YTD) refers to the period extending from the beginning of the year to the present.In business, note that the beginning of the year is not always January 1; many companies have fiscal years beginning at other times. Read more

Young and Wealthy but Normal (YAWN)

The Young and Wealthy but Normal (YAWN) demographic is a group of people who typically have generated their own wealth but live modest lifestyles. Let's say John and Jane Doe each has a job that pays $175,000 per year. Read more


Zero-bound is a scenario in which the Federal Reserve lowers interest rates to zero or near zero.Traders sometimes also use the term to describe stocks that seem to be quickly losing value. Read more

ZEW Economic Sentiment

The ZEW Economic Sentiment is a monthly survey of economic sentiment in Germany.(The acronym stands for Zentrum für Europäische Wirtschaftsforschung GmbH, or Centre for European Economic Research.) The ZEW was founded in 1990 by the German government in conjunction with Mannheim University. Read more