Economic Terms

Economics can be an intimidating subject but, by understanding the fundamental definitions of economic terms, you can start to get a sense of why economic changes happen, what drives and economy, and how they affect your daily life.

Frequently Asked Questions

  • What is supply and demand?

    Supply and demand are the forces that drive the U.S. economy. Supply includes labor, represented by employment, and natural resources, such as oil, land, and water. Oil prices drive over 50% of the cost of gas. Demand, or personal consumption, drives almost 70% of the economy. A lot of this occurs during the holiday shopping season, which starts on Black Friday.

  • How does trickle-down economics work?

    Trickle-down economics assumes investors, savers, and company owners are the real drivers of growth. It promises they’ll use any extra cash from tax cuts to expand businesses. Investors will buy more companies or stocks. Banks will increase lending. Owners will invest in their operations and hire workers. All of this expansion will trickle down to workers.

  • What is economic growth?

    Economic growth is the increase in the value of an economy's goods and services, which creates more profit for businesses. As a result, stock prices rise. That gives companies capital to invest and hire more employees.

  • What is middle class income?

    Although the U.S. government doesn't have an official definition of middle-class income, the Pew Research Center considers a household income to be "middle-class" if it's between 67% and 200% of the median household income.

  • What is an economic depression?

    An economic depression is a severe downturn that lasts several years. Fortunately, the world has only experienced one economic depression. That was the Great Depression which lasted for 10 years. The decline in the gross domestic product growth rate was bigger than anything experienced since then.

Key Terms

couple reviewing bills at a laptop
What Is Universal Basic Income?
Financial Derivatives: Definition, Types, Risks
Custom illustration shows five drawings that are key aspects of the laissez-faire economic theory. Text says: "Definition: Laissez-faire economics restrict government intervention in the economy," "Laissez-faire = French for," and "In order to work, Laissez-faire policies need: Capitalism, Free market economy, and "Rational market theory."
Laissez-Faire Economic Theory
Elastic demand definition
Elastic Demand
Four scenarios: a man typing on his laptop sitting on a fire escape. A man at a bazaar purchasing food. A woman at the grocery store. A woman getting her hair cut. There is a world map drifting by in the background.
How to Compare the Cost of Living Around the World
President Richard Nixon points at a reporter during a press conference.
What Is the New York Stock Exchange, and How Does It Work?
2 Foolproof Ways to Increase Profit
The Great Crash
The Worst Day in Wall Street's History
Stock trader
A couple looks over their FNMA loan documents.
What Is Fannie Mae?
What Really Makes the World Go 'Round
Financial advisor meeting in a bank office.
Standard and Poor's (S&P)
Traders work on the floor of the New York Stock Exchange
How the SEC Is Preventing Another Depression
Image shows a woman lecturing to a group of people in front of a world map. Text reads: "What does 'Per Capita' mean? Translating to 'by the head,' the term is commonly used in statistics, economics, and business to report an average per person. Tells you how a country, state, or city affects its residents. When calculating per capita divides a statistical measurement for an organization by its population. Example: GDP per capita is a country's economic output per person"
Per Capita
couple reviewing financials
Bear Market
Two people talk with each other.
Ceteris Paribus
two women
What Real GDP per Capita Reveals About Your Lifestyle
Image shows three scenarios: a woman talking to her financial advisor, a man at a bank, and a woman looking online. Text reads: "How to buy municipal bonds: talk to your financial advisor, visit your local bank, reach out to the municipality directly"
Four Looming Threats in Municipal Bonds
woman pumping gas
Pigouvian Taxes: Definition, Examples, Pros, and Cons
Image shows two women holding boxes. Text reads: The basics of common stocks; Shares of ownership of corporations; Allows for ownership of a portion of the company without taking possession; Lets stockholders votes on corporate issues, such as the board of directors and accepting takeover bids; Many corporations also give stockholders dividend payouts
Common Stock
bull statue in the city
Bull Market
Image shows two people working on a peach farm with a red barn in the distance. Text reads: "The four factors of production. Factor 1: Labor, Factor 2: Land, Factor 3: Capital, Factor 4: Entrepreneurship."
4 Factors of Production
Man and woman comparing two brands of a product in the grocery store
How a Demand Curve Reflects Consumer Desires
What causes hyperinflation? It starts when a country's gov't begins printing money to pay for its spending. Instead of tightening the money supply to stop inflation, the government keeps printing more. Hyperinflation is when the prices of goods and services rise more than 50% in a month. As the gov't increases the money supply, prices rise as in regular inflation. With too much money sloshing around, prices skyrocket.
What Is Hyperinflation?
Young woman using credit card during online shopping
Don't Miss the Holiday Sales on Green Monday
A mother plays with her son in their new home.
Freddie Mac
Woman in Front of Chinese Stock Market display
Emerging Markets
Deflation Threatens You More Than Inflation.
Apple iPhone 5C
3 Types of Market Cap
A woman looks contemplatively at her laptop in a conference room.
Taper Tantrum
What is a central bank? An independent national authority. Conducts monetary policy, regulates banks, and provides financial services like economic research. Goals include stabilizing the nation's currency, keeping unemployment low, and preventing inflation. Most are governed by a board made up of its member banks
Meet the People Who Control the World's Money
Mother holding credit card and daughter look at digital tablet
What You Need To Know About Cyber Monday
Restaurant workers preparing meals in a kitchen line
Inflationary Gap
llustration of dollar bill signs entering a bank vault to symbollize open market operations
How the Fed Controls the Money Supply
This illustration shows the effective measurements of economic growth, including real gross domestic product (GDP), the World Bank uses gross national income to measure growth, and most countries measure economic growth each quarter.
Economic Growth
College students sitting at tiered desks in a lecture hall.
Human Capital
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Economic Recovery
A person talks with someone.
Why Your Pension Fund May Gone When You Need It
couple reviewing bills
Is Now the Most Miserable Time Since the Great Depression?
Woman Reading Label On Clothing While Out Shopping
A little girl eating from a bowl at a table surrounded by three bears
Goldilocks Economy
Person buying groceries
Where's the Best Standard of Living? It Depends Whom You Ask
A person places an order at a coffee shop.
Workers gather in a warehouse.
New York Fed Reserve
Federal Reserve Discount Rate
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Why Most Countries Hate Trade Deficits
Image shows how securities affect the economy. Text reads: Securities make it easier for those with money to find those who need investment capital. Securities make markets more efficient. Securities are readily traded. Securities are investments traded on a secondary market. There are three types: Equities, Bonds, Derivatives
How Securities Affect the U.S. Economy and Why It Matters to You
Labor force
Are You Officially in the Labor Force?
what to know about production possibilities curves. The points show how much of each goods will be produced when resources shift for more production of one good, and less of the other. It demonstrates the concept of opportunity cost. It doesn’t indicate how much of each good should be produced, but the production sacrifice needed to make more of the other good.
Production Possibilities Curve in Economics
Image shows the pros and cons of most favored nation status, including pros such as access to a larger market, reduces export costs, and increases competitiveness. Cons include must give members the same benefits, easy to become a victim of shady trade practices, and developing countries still face high tariffs on selected goods.
How Most Favored Nation Status Lowers Your Shopping Bill
Aggregate Demand
what are capital goods? tools, buildings, machinery, equipment, vehicles
Capital Goods
what is the OECD?
How the OECD Can Help You
a couple that understands financial markets
Make Financial Markets Work for You
Young freelancing couple looks at computer in home office
Investing in Junk Bonds
Image shows a man buying food at a mcdonalds. Text reads: "What is purchasing power parity? A theoretical exchange rate that allows you to buy the same amount of goods and services in every country; Government agencies use it to compare the output of countries that use different exchange rates; Example: If you want to live cheap, and you can move to any country in the world, compare prices of a Big Mac"
Purchase Power Parity
Indian businessman
What Does the MSCI Index Track?

More in US & World Economies:

Page Sources

  1. U.S. Energy Information Administration. "Gasoline and Diesel Fuel Update."

  2. FRED, Federal Reserve Bank of St. Louis. "Personal Consumption Expenditures/Gross Domestic Product."

  3. Pew Research Center. "America’s Shrinking Middle Class: A Close Look at Changes Within Metropolitan Areas."

  4. Bureau of Economic Analysis. "Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product."

  5. Office of the Comptroller of the Currency. "Derivatives."

  6. Federal Reserve Bank of Minneapolis. "Stock Market Volatility and Learning."

  7. Federal Housing Finance Agency. "Fannie Mae and Freddie Mac."

  8. Fannie Mae. "Who We Are."

  9. Congressional Research Service. "Fannie Mae and Freddie Mac in Conservatorship: Frequently Asked Questions," Pages 1-2.

  10. S&P Global. "Research and Insights."