Rate of Return
Earnings from an investment, stated as a percentage of the amount invested; usually calculated on an annual basis.
Expectations about the future rate of inflation or other economic events that people form using all available information, including predictions about the effect of present and future policy actions by the government.
Rational Expectations Theory
A branch of New Classical theory which holds that firms and individuals have rational expectations about the economy and government policies and thus may pursue their own interests in such a way as to render those policies ineffective.
A decision not to obtain information about political issues or candidates because the costs of doing so outweigh the benefits.
Property such as land, houses and office buildings.
Real Estate Tax
A tax on land and structures built on it (houses, factories, etc.). Payments go to state and/or local governments to pay for police protection, public schools, libraries, etc.
Real Gross Domestic Product (GDP)
GDP measured in dollars of constant purchasing power. The measure is obtained by adjusting nominal GDP (GDP measured in current prices) by an appropriate price index, usually the implicit price deflator. Often used as a measure of economic activity.
Real Interest Rates
The nominal (posted) interest rate minus the rate of inflation.
Real vs. Nominal
Two ways of expressing monetary values. Nominal monetary values are measured in current prices; real monetary values are measured in constant prices, that is, in prices of a given or base period. Real monetary values are obtained by adjusting nominal monetary values with an appropriate index of prices.
The wage rate adjusted for inflation; the purchasing power of wages, the volume of goods and services that money wages will buy.
A decline in the rate of national economic activity, usually measured by a decline in real GDP for at least two consecutive quarters (i.e., six months).
The amount by which the aggregate expenditures curve must increase (shift upward) to increase the real GDP to the full-employment noninflationary level.
Redistribution of Income
The transfer of income (in cash or in kind) through government taxation, spending and assistance programs targeted at particular income groups, and programs designed to provide training to workers or to encourage private investments in education or other kinds of human capital. The goal is to transfer money from higher-income groups to lower-income groups.
A tax that takes a larger percentage of income from people in lower-income groups than from higher-income ones. Sales taxes and excise taxes are examples.
Economic regulation is the prescription of price and output for a specific industry, often a natural monopoly. Social regulation is the prescription of health, safety, performance, environmental, output and job standards across several industries.
The price of one good in relation to the price of another good; a measure of opportunity costs and therefore the price that affects economic decision making.
Rent to Own
An arrangement whereby consumers rent something (often furniture), making regular rental payments, and become owners of the rented object(s) after a specified period of time--sometimes automatically and sometimes with an additional payment. A legal business but very costly to consumers.
The minimum amount of cash reserves (a percentage of the deposits) in dollars that a bank is required by law to keep on hand or with the Federal Reserve.
The fraction of banks' deposits that they are required by law to keep on hand or with the Federal Reserve.
The basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.
A document describing a job-seeker to prospective employers. Usually includes the job-seeker's name, telephone number, address, e-mail address, career objective, education, work experience, abilities, awards, offices held in organizations and special interests.
Accounts such as IRAs (Individual Retirement Accounts), SEPs (Simplified Employee Pension Plans) and Keogh Plans that allow individuals to save money toward retirement on a tax-deferred basis.
Earnings from an investment, usually expressed as an annual percentage.
The money a business receives from customers who buy its goods and services. Not to be confused with profit.
The chance of losing money.
Risk of Financial Loss
The chance that the value of an investment (the principal) will decrease.
As applied to investments: the greater the risk, the greater the potential reward. For example: passbook savings accounts offer depositors very low risk but also low rates of interest; growth stocks are much riskier, but they offer a potential for big gains.
Role of Government
Government activity in establishing a framework or rules of the game in economic life. In the United States, this activity involves preserving and fostering competition, regulating natural monopolies, providing information and services to enable the market to work better, regulating externalities, providing certain public goods, offering some economic security and income redistribution to individuals, assuring a sound monetary system and promoting overall economic stability and growth.
Rule of 72
A mathematical rule for determining the number of years it will take for an investment to double in value. The number of years is determined by dividing 72 by the annual rate of return. Thus, an investment expected to earn interest at a rate of 8 percent will double an investor's funds in 72/8, or nine years. Dividing 72 by the number of years in which an investor wishes to double his or her return will yield the necessary rate.