Glossary

A regular payment, often at monthly or biweekly intervals, made by an employer to an employee, especially in the case of professional or white-collar employees. Salaries are paid for services rendered and are not based on hours worked.

An exchange of goods or services for money.

The money a business receives from customers who buy its goods and services. Not to be confused with profit.

Tax in the form of a percent of the cost of a good or service; paid to local and state governments when goods and services are purchased.

To keep money for future use; to divert money from current spending to a savings account or another form of investment.

Persons who desire to conserve their monetary funds to the best of their ability.

Disposable income (income after taxes) minus consumption spending.

Broadly speaking, an individual has only two choices about what to do with (after-tax) income: spending on current consumption or saving for the future. From an individual point of view, saved money typically becomes a form of investing, since the money is put into a bank account, stock, bond or mutual fund that pays a rate of return. For an individual, investing refers to postponing current consumption or rewards to pursue an activity with expectations of greater benefits in the future. Financial investment refers to the decisions by individuals and firms to invest money in financial assets such as bank accounts, certificates of deposit, stocks, bonds and mutual funds. Financial investment is crucial to accumulating personal wealth. Real investment or physical capital investment is the component of aggregate demand that refers to the decisions by firms to purchase equipment and physical plant, and also the purchases of new homes by consumers. The amount of real investment is critical to economic growth. Financial investment and real investment are connected, but they are not the same. Thus, when you hear a casual reference to "investment," be clear in your own mind on whether it is financial investment or real investment.

Money held in easily-accessed accounts, such as savings accounts and certificates of deposits (CDs).

An interest-bearing account (passbook or statement) at a financial institution.

Arrangements by means of which people save money, including savings accounts, certificates of deposit (CDs), money market deposit accounts, and U.S. Savings Bonds.

A plan for setting aside money for future use.

The condition that exists (for rich countries, poor countries, individuals, and organizations) because human wants exceed the capacity of available resources to satisfy those wants.

Credit with collateral (for example, a house or a car) for the lender.

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

A property of a good or service such that it can be used by many without diminishing another's ability to consume the same good; examples include street lights and radio broadcasts.

Something a person or organization plans to achieve within a one-year time period.

The situation that arises when the quantity demanded of a product exceeds the quantity supplied. Shortages generally occur when a price is set below the equilibrium price. (See also Equilibrium price; compare Surplus.)

Interest paid on the initial investment (the principal) only. Calculated by multiplying the investment principal times the annual rate of return times the number of years involved.

A federal system of old-age, survivors, disability, and healthcare (Medicare) insurance which requires employers to withhold (or transfer) wages from employees’ paychecks and deposit that money in designated accounts.

A tax levied on employers and employees to finance public Social Security benefits.

An organization of people with a particular legislative concern. They work together to gather information, lobby politicians and publicize their concern.

A situation in which people produce a narrower range of goods and services than they consume. Specialization increases productivity; it also requires trade and increases interdependence.

Use money now to buy goods and services.

The level of subsistence of a nation, social class or individual with reference to the adequacy of necessities and comforts of daily life.

An ownership share or shares of ownership in a corporation.

A market in which the public trades stock that someone already owns. Often called the secondary stock market.

A mutual fund that buys stocks in order to make profits for the investors.

The type of unemployment resulting from people's present abilities, skills, training and location not matching up with available job openings that reflect the basic structure of the economy.

A good that can be consumed or used in the place of another good with minimal differences.

The quantity of a good or service that producers are willing and able to sell at given prices during a period of time.

Policy intended to increase an economy's productive capacity by shifting aggregate supply; e.g., a tax cut giving businesses an incentive to invest and expand.

The situation that results when the quantity supplied of a product exceeds the quantity demanded. Generally happens because the price of the product is above the market equilibrium price.