Council for Economic Education Glossary

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Earned Income
Money received for work performed; may include salary, wages, tips, professional fees, commissions, etc.

Easy-Money Policy
Monetary policy designed to stimulate the economy by increasing the level of bank reserves through lowering the discount rate, lowering reserve requirements or buying securities through open market operations.

Economic Development
The process of improving the quality of human lives through raising living standards. Economic development is broader than economic growth, which is concerned with year-to-year increases in production. Economic development deals with the economic, social and political institutions that govern the way the economy and society function.

Economic Efficiency
A situation in which no one in a society can be made better off without making someone else worse off.

Economic Equity
The application of our concepts of what is "fair" or "unfair" and what is "right" or "wrong" to an economic policy. Ultimately deals with the distribution of income and wealth.

Economic Freedom
The freedoms of the marketplace--the freedom of consumers to decide how they wish to allocate their spending among various goods and services; the freedom of workers to choose to change jobs, join unions and go on strike; the freedom of individuals to establish businesses and to decide what to produce and when to change their pattern of production; and the freedom of savers to decide when and where to invest their savings.

Economic Functions of Government
In a market economy, government agencies establish and maintain a legal system to regulate both commercial and social behavior, promote competition, respond to market failures by providing public goods and adjusting for externalities, redistribute income and establish macroeconomic stabilization policies. To perform these functions, governments must shift resources from private uses by taxing and/or borrowing.

Economic Growth
An increase in real output as measured by real GDP or per capita real GDP.

Economic Incentives
Factors that motivate and influence the behavior of individuals and organizations, including firms and government agencies. Prices, profits and losses are important economic incentives in a market economy.

Economic Institutions
Organizations such as households and families; formal organizations such as corporations, government agencies, banks, labor unions and cooperatives; a system of law; customary ways of doing things such as the use of money, collective bargaining and the observance of certain holidays; and controlling values and beliefs.

Economic Loss
Total revenue is less than total costs when total costs include all opportunity costs.

Economic Profit
A firm's total revenue minus all explicit and implicit costs of production, including opportunity costs.

Economic Rent
Payment for the use of something that is in fixed or perfectly inelastic supply; earnings in excess of the earnings required to keep a resource in its current use; the portion of a resource's earnings that is not necessary to keep the resource in its present use.

Economic Security
Protection against economic risks, such as unemployment, accidents on the job, business failures or natural disasters, over which people have little or no control.

Economic Systems
The institutional framework of formal and informal rules that a society uses to determine what to produce, how to produce and how to distribute goods and services.

Economic Wants
Desires that can be satisfied by consuming a good or service. Economists do not differentiate between wants and needs.

Economic Way of Thinking
A reasoning process that involves considering costs as well as benefits in making decisions.

The study of how people, firms and societies choose to allocate scarce resources with alternative uses.

Economizing Behavior
Considering the costs and benefits of various alternatives and choosing the one with the greatest net benefits.

Electronic Funds Transfer Act
A federal law providing consumer protection for people who use ATMs and debit cards. The law limits users' liability for unauthorized charges made on cards that have been lost or stolen.

Employment Rate
The percentage of the total population aged 16 or over that is employed.

A signature on the back of a check instructing the bank as to how the check may be cashed. There are three types of endorsement. Blank endorsement: The signature makes the check as good as cash to anybody who holds it. Restrictive endorsement: The signature tags the check for a specific purpose, such as "for deposit only" to a checking or savings account. Special endorsement: The signature allows the holder to transfer the check to another person.

One who draws upon his or her skills and initiative to launch a new business venture with the aim of making a profit. Often a risk-taker, inclined to see opportunity when others do not.

A characteristic of people who assume the risk of organizing productive resources to produce goods and services; a resource.

Equal Credit Opportunity Act
A federal law that prevents lenders from denying credit on the basis of an applicant's sex, marital status, race, national origin, religion, or age, or because an applicant receives public assistance.

Equilibrium Price
The price at which the quantity demanded by buyers equals the quantity supplied by sellers; also called the market-clearing price.

Equilibrium Quantity
The quantity demanded and quantity supplied at the equilibrium or market-clearing price.

Stock, both common and preferred. Also, the value of mortgaged property after accounting for charges against it or money owed.

European Union (EU)
An association of European nations created by the Maastricht Treaty signed in 1992. The EU has eliminated quotas and tariffs among its members and created other common economic policies.

Excess Reserves
A bank's cash reserves beyond the required reserves, which can be loaned.

Trading a good or service for another good or service, or for money.

Exchange Rate
The price of one nation's currency in terms of another nation's currency.

Expansionary Fiscal Policy
An increase in government spending and/or a decrease in taxes designed to increase aggregate demand in the economy, thus increasing real output and decreasing unemployment.

Payments for goods and services.

Experimental Economics
The study of people's behavior in the marketplace by scientific testing in the laboratory.

Explicit Cost
The monetary payment a firm must make to obtain a resource.

Goods and services produced in one nation and sold in other nations.

Economic side-effects or third-party effects, in which some of the benefits or costs associated with the production or consumption of a product affect someone other than the direct producer or consumer of the product. Can be positive or negative.