Council for Economic Education Glossary

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C

Capacity
In the context of credit transactions, capacity is one of the Three Cs of Credit. It is an indicator of how creditworthy a prospective borrower is likely to be, as determined by the borrower's current and future earnings relative to current debt. High earnings and low debt, for example, indicate a strong capacity to make payments on the loan in question.

Capital
Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools and equipment. In the context of credit transactions, capital is one of the Three Cs of Credit. It is an indicator of how creditworthy a prospective borrower is likely to be as determined by the borrower's current financial assets and net worth.

Capital Account
Part of a nation's balance of payments accounts; records capital outflows, i.e., expenditures made by the nation's residents to purchase physical capital and financial assets from the residents of foreign nations; also records capital inflows, i.e., expenditures by residents of foreign nations to purchase physical capital and financial assets from residents of the nation in question.

Capital Account Balance
Foreign government and private investment in the United States netted against similar U.S. investment in foreign countries.

Capital Gain
A profit realized from the sale of property, stocks or other investments.

Capital Loss
A loss suffered upon the sale of property, stocks or other investments for less money than the purchase price of the asset in question.

Capital Resources
Resources made and used to produce and distribute goods and services; examples include tools, machinery and buildings.

Cash
Money in the form of paper currency or coins (as distinct from checks, money orders or credit).

Cash Advance
In a credit arrangement, the amount charged to a borrower's account for cash received; an instant loan.

Cash Available
In a credit arrangement, the difference between the cash-advance limit and withdrawals made (advances issued); the remaining balance.

Cash-Advance Limit
In a credit arrangement, the maximum amount that can be issued for a cash advance.

Central Banking System
A nation's central bank that is established to regulate the money supply and oversee the nation's banks. In the United States the Federal Reserve is the central bank.

Certificate of Deposit (CD)
A certificate issued by a bank to a person depositing money in an account for a specified period of time (often six months, one year or two years). A penalty is charged for early withdrawal from CD accounts.

Character
In the context of credit transactions, character is one of the Three Cs of Credit. It is an indicator of how creditworthy a prospective borrower is likely to be, as determined by the borrower's handling of past debts and his or her stability in jobs and residences.

Check
A written order to a financial institution directing the financial institution to pay a stated amount of money, as instructed, from the customer's account.

Check Register
A form (usually located in the back of a checkbook) on which users of checking accounts may record checks they have written and deposits they have made. Information thus recorded helps people keep track of balances in their accounts.

Checking Account
A financial account into which people deposit money and from which they withdraw money by writing checks.

Choice
Decision made or course of action taken when faced with a set of alternatives.

Circular Flow
The movement of output and income from one sector of the economy to another; often illustrated as a circular flow diagram.

Coincident Indicators
Economic variables, such as payroll employment, industrial production, personal income, and manufacturing and trade sales, that tend to change at the same time that real output changes.

Coins
Government-issued pieces of metal that have value and are used as money.

Collateral
Something of value (often a house or a car) pledged by a borrower as security for a loan. If the borrower fails to make payments on the loan, the collateral may be sold; proceeds from the sale may then be used to pay down the unpaid debt.

Collision Insurance Coverage
Insurance that pays for repairs to an automobile, or replacement of the automobile (minus the deductible in each case), if the automobile is hit by another car.

Collusion
A secret agreement between firms to fix prices or engage in other activities to restrict competition in an industry; illegal in the United States.

Command Economy
An economy in which most economic issues of production and distribution are resolved through central planning and control.

Commodities Market
The market for the purchase and sale of commodity (a basic product, usually, but not always, agricultural or mineral) futures, contracts for the sale and delivery of commodities at some future time.

Communism
In theory, an economic system based on a classless society, common ownership of all resources, the complete disappearance of government and income allocated according to need. In practice, communism usually refers to the command economic system in existence in the former Soviet Union before its downfall in 1990-1991, and in other countries such as China and Cuba.

Comparative Advantage
The ability to produce a good or service at a lower opportunity cost than some other producer. This is the economic basis for specialization and trade.

Comparison Shopping
Examining different brands or models of a product (to learn about variations in quality, size, etc.), or the prices charged by different sellers (to learn about possible cost-savings), before deciding what to buy.

Competition
Attempts by two or more individuals or organizations to acquire the same goods, services, or productive and financial resources. Consumers compete with other consumers for goods and services. Producers compete with other producers for sales to consumers.

Complementary Goods and Services
Goods and/or services that are typically used together, such as hamburger and hamburger buns, or tennis rackets and tennis lessons.

Compound Interest
Interest that is earned not only on the principal but also on the interest already earned.

Compounding
Paying interest on the principal and on interest already earned. For example, if someone deposits $2,000 in an account that pays interest at 8 percent, he or she will earn $160 in interest after one year, for a balance of $2,160. If the depositor leaves this sum in the account for another year, however, he or she will earn $172.80 in interest because the 8 percent rate will apply to the new balance of $2,160, not the original $2,000 deposit. The longer the money is left in the account, the more dramatic the compounding effect.

Comprehensive Insurance Coverage
Insurance that pays for repairs to an automobile, or replacement of an automobile (minus the deductible in each case), if the automobile is stolen or damaged by something other than a collision (for example, by a hail storm).

Concentration Ratio
The percentage of the total industry by the largest firms (generally four or eight) in an industry. The concentration ratio provides a measure of domination in an industry by a few firms and serves as a measure of whether an industry is an oligopoly.

Consequence
A result or effect of an action or decision; may be positive or negative.

Consume
To buy and use a good or service.

Consumer Economics
The study of economics that addresses decisions of consumers in the marketplace and personal money management.

Consumer Price Index (CPI)
A price index that measures the cost of a fixed basket of consumer goods and services and compares the cost of this basket in one time period with its cost in some base period. Changes in the CPI are used to measure inflation.

Consumer Surplus
The difference between the price a consumer would be willing to pay for a good or service and the price that consumer actually has to pay.

Consumers
People who use goods and services to satisfy their personal needs and not for resale or in the production of other goods and services.

Consumption
Spending by households on goods and services. The process of buying and using goods and services.

Contractionary Fiscal Policy
A decrease in government spending and/or an increase in taxes designed to decrease aggregate demand in the economy and control inflation.

Corporation
A legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own.

Cost-Push Inflation
Inflation caused by rising costs of production.

Cost/Benefit Analysis
A process of examining the advantages (benefits) and disadvantages (costs) of each available alternative in arriving at a decision.

Costs
An amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain something.

Costs of Production
Amounts paid for resources (land, labor, capital and entrepreneurship) used to produce goods and services.

Council of Economic Advisers
A three-member group that gathers information on the economy, reports on economic developments and recommends strategies to the President.

Credit
The opportunity to borrow money or to receive goods or services in return for a promise to pay later.

Credit Agreement
A written promise to repay something that is borrowed.

Credit Application
A request for a loan, submitted to a lender (for example, a bank or a credit union) by a prospective borrower. The credit application provides background information which the lender uses to assess the prospective borrower's creditworthiness--his or her ability to repay the loan.

Credit Card
A small, specially coded plastic card issued by a bank, business, etc., authorizing the cardholder to purchase goods or services on credit.

Credit Costs
Charges associated with the acceptance of a loan, including the finance charge and transaction fees (for example, loan fees, annual or monthly fees on a credit account).

Credit History
A record of past borrowing and repayments.

Credit Limit
The maximum amount of money that will be extended to a person by a financial institution or credit-card issuer.

Credit Rating
An evaluation of a borrower's ability to repay a loan based on his or her character, capacity and capital.

Credit Record
A report about a person's credit history, including his or her ability and willingness to repay debts, based on how reliably he or she has repaid debts in the past. Also known as a credit report.

Credit Report
A report about a person's credit history, including his or her ability and willingness to repay debts, based on how reliably he or she has repaid debts in the past. Also known as a credit record.

Credit Union
A nonprofit financial institution owned by its members; offers various financial services including accounts and loans; regulated by the National Credit Union Association (NCUA).

Credit-Card Statement
A monthly summary from a credit-card company conveying information about a cardholder's purchases, payments, balance due and fees.

Creditor
A person or company to whom money is owed.

Creditworthiness
The extent to which a person is deemed suitable to receive credit, especially as shown by reliability in repaying loans in the past.

Cross-Price Elasticity of Demand
The percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good, everything else held constant. It measures the degree to which goods are substitutes or complements. When the cross-price elasticity of demand is positive, the goods are substitutes; when the cross-price elasticity of demand is negative, the goods are complements.

Crowding-Out
Increased interest rates and decreased private investment caused by government borrowing.

Currency
The money in circulation in any country.

Currency Board
A government organization existing in a few countries that establishes a fixed exchange rate for the nation's currency.

Currency Devaluation
When a government adjusts the value of the nation's currency so that it buys less of foreign currencies than before.

Current Account
Part of a nation's balance of payments accounts; records exports and imports of goods and services, net investment income and transfer payments with other countries.

Current Account Balance
The inflow of the goods, services, investment income and transfer accounts into the United States from foreign countries netted against the outflow of goods, services, investment income and transfer accounts from the United States to foreign countries.

Cyclical Unemployment
Unemployment caused by fluctuations in the overall rate of economic activity or phase of the business cycle.