Council for Economic Education Glossary

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F

Factor Endowments
The theory that differences in factor endowments among countries result in different opportunity costs; countries have comparative advantages in the production of commodities that are intensive in the use of the factors of production with which their endowments are relatively abundant.

Factor Prices
The prices of land, capital, labor and entrepreneurship.

Factors of Production
Productive resources; what is required to produce the goods and services that people want; natural resources, human resources, capital goods and entrepreneurship.

Fair Credit Billing Act
A federal law that requires creditors to mail out bills at least 14 days before payment is due and also establishes procedures for resolving billing errors on credit accounts.

Fair Credit Reporting Act
A federal law governing the activities of credit bureaus and creditors. It requires creditors to furnish accurate and complete information to borrowers; it also establishes a process consumers may use to correct inaccuracies in credit reports.

Fair Debt Collection Practices Act
A federal law that bars collection agencies from using threats, harassment or abuse in their efforts to collect debts.

Fair-Return Price
A price that allows a regulated monopoly, such as gas, electric and telephone companies, to earn the approved profit.

Federal Budget
The taxing and spending plan of the national government.

Federal Deposit Insurance Corporation (FDIC)
A federal agency that guarantees depositors' savings up to $100,000 per account in most commercial banks, savings banks and savings associations.

Federal Income Tax
A tax paid by individuals and businesses to the federal government to fund such services as national defense, human services, and the monitoring and regulation of trade.

Federal Insurance Contributions Act (FICA)
A federal system of old-age, survivors, disability and health-care insurance (Medicare) which requires employers to withhold (or transfer) wages from employees' paychecks and deposit that money in designated accounts.

Federal Reserve
The central bank of the United States. Its main function is controlling the money supply through monetary policy. The Federal Reserve System divides the country into 12 districts, each with its own Federal Reserve bank. Each district bank is directed by its nine-person board of directors. The Board of Governors, which is made up of seven members appointed by the President and confirmed by the Senate to 14-year terms, directs the nation's monetary policy and the overall activities of the Federal Reserve. The Federal Open Market Committee is the official policy-making body; it is made up of the members of the Board of Governors and five of the district bank presidents.

Finance Charge
The total cost of credit, including interest and transaction fees.

Financial Intermediaries
Banks, credit unions, pension funds, insurance companies, mutual fund companies and other financial institutions that bring together savers and borrowers and buyers and sellers of stocks and bonds.

Financial Planning
Setting short-, medium- and long-range goals; then collecting and analyzing income and expenditure information to determine how to meet one's goals.

Financial Risk
The chance that an individual, business or government will not be able to return money invested.

Firms
Economic units that demand productive resources from households and supply goods and services to households and government agencies.

Fiscal Policy
Changes in the expenditures or tax revenues of the federal government, undertaken to promote full employment, price stability and reasonable rates of economic growth.

Fixed Costs (FC)
Costs of production that do not change as a firm's output level changes; costs that must be paid whether the firm produces or not.

Fixed Exchange Rate
An exchange rate that is set and therefore prevented from rising or falling with changes in supply and demand for a nation's currency.

Fixed Expenses
Expenditures that are the same from week to week or month to month, such as mortgage or rent payments and car payments.

Fixed Income
Income that stays the same from week to week or month to month. Usually refers to income from pensions or bonds.

Flexible (Floating) Exchange Rate
An exchange rate that is determined by the international demand for and supply of a nation's money; a rate free to rise or fall (to float).

Foreign Direct Investment (FDI)
Investment that involves ownership of a firm or business in another country. FDI involves things such as constructing factories on foreign soil, rather than investing in stock markets (portfolio investment). The investing company frequently provides financial, managerial and technical assistance and other resources to the foreign country.

Foreign Exchange Market
The market where the demand for and supply of foreign currencies determines exchange rates.

Foreign Investment
The purchase of financial and/or physical assets in one county by businesses or people in another county. This term can refer to either foreign direct investment or investment in foreign financial assets, such as stocks.

Fractional Reserve Banking System
A system in which banks are required to hold only a specified fraction of their deposits available for withdrawal by depositors. The rest may be lent out, thus "creating money."

Fraud
Wrongful or criminal deception intended to manipulate a person for the purpose of gain, usually financial.

Fraud Risk
The chance that an investment has been misrepresented.

Free Rider
One who enjoys the benefits of a good or service without paying for it.

Free Trade
The voluntary exchange of goods and services in the absence of trade barriers and restrictions.

Frictional Unemployment
Unemployment caused by the short-term movement of people between jobs and by first-time job seekers entering the labor force; always present in a dynamic economy.

Full Employment
The natural rate of employment; generally considered to be about 93-95 percent of the labor force, allowing for frictional unemployment of 5-7 percent.

Functional Distribution of Income
The division of an economy's total income into wages and salaries, rent, interest, and profit; shows the breakdown of income received by individuals and businesses based on the type of resources provided to the productive process.