. 31
( 33)


1950 1970 1980 1990 2000*
Source: Department of Labor, Bureau of Labor Statistics

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The American People
Hours and Earnings in Private Industries, 1960“1999
A Average Weekly Hours


1960 1965 1970 1975 1980 1985 1990 1995 1999

B Average Weekly Earnings, Current Dollars





1960 1965 1970 1975 1980 1985 1990 1995 1999

C Average Weekly Earnings, 1982 Dollars



1960 1965 1970 1975 1980 1985 1990 1995 1999
Source: Bureau of Labor Statistics

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The U.S. Economy

Gross Domestic Product, 1950“2000
Total in billions of current dollars






1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000*
Source: U.S. Department of Commerce

Annual Changes in Consumer Price Indexes, 1940“2000
Percent change for all urban consumers




1940 1950 1960 1970 1980 1990 2000*
All Items Medical Care Services Food
Source: Bureau of Labor Statistics

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The U.S. Economy

Personal Consumption Expenditures, 1960“2000
Durable Goods
In billions of constant (1992) dollars

Nondurable Goods




1960 1970 1980 1990 2000*
Source: Department of Commerce, Bureau of Economic Analysis

Personal Consumption Expenditures, Nondurable Goods, 1960“2000

Billions of dollars


Clothing and shoes

Gasoline and oil
Fuel oil and coal
1960 1970 1980 1990 2000*
Source: Department of Commerce, Bureau of Economic Analysis

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The U.S. Economy

Average Prices of Selected Goods, 1989“1999
Electricity per 500 KWH

Utility natural gas, 40 therms
$0.35 (1 therm = 100,000 British thermal units)

1989 1991 1993 1995 1997 1999

Gasoline, all types, per gallon

Gasoline, unleaded regular, per gallon
$ .90
1989 1991 1993 1995 1997 1999

Ground chuck, 100% beef, per pound

Chicken, per pound
Eggs, 1 dozen large
White bread, per pound
1989 1991 1993 1995 1997 1999

Milk, 1/2 gal. whole

Tomatoes, per lb.
Apples, red delicious, per lb.
Bananas, per lb.
$ .00
1989 1991 1993 1995 1997 1999
Source: Bureau of Labor Statistics
U.S. city average prices for July

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The U.S. Economy

Business Sector: Changes in Productivity & Related Data, 1960“2000
% change from preceding year

Unit labor costs


Real compensation per hour

1960 1970 1980 1990 2000*
Source: Bureau of Labor Statistics

Inflation in Consumer Prices, 1915“2000
In percent (December“December)






1915 1920 1930 1940 1950 1960 1970 1980 1990 2000*
Source: Department of Commerce

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The Government Sector

Federal Government Expenditures, 1949“1999


Billions of current dollars



1949 1959 1969 1979 1989 1999
National Defense
Source: U.S. Department of Commerce

Total Government Expenditures, 1949“1999

Billions of current dollars






1949 1959 1969 1979 1989 1999
Federal Expenditures
State and Local Expenditures
Source: U.S. Department of Commerce

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The Government Sector

Federal Government Net Receipts and Net Outlays, 1950“2000
In billions of dollars

1950 1960 1970 1980 1990 2000*
Source: Economic Report of the President, various editions

Federal Debt, Total Outstanding, 1960“2000**
In billions of dollars

Total federal debt
1960 1970 1980 1990 2000*
Source: U.S. Bureau of the Census
**Includes federal debt held by the public and by the federal government

National Debt Per Capita, 1940“2000**

0 2 4 6 8 10 12 14 16 18 20 22
In thousands of dollars
Sources: U.S. Bureau of the Census; U.S. Bureau of Public Debt
**Includes federal debt held by the public and by the federal government

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The Government Sector

Federal Budget Receipts, 1980“1999

A Federal Budget Receipts B Individual Income Taxes C Employment Taxes
200 80 50
(Billions of dollars)

(Billions of dollars)

(Billions of dollars)
160 40
120 30
80 20
40 10

0 0
1980 1990 1999 1980 1990 1999
1980 1990 1999
Year Year

D Corporate Income Taxes E Excise Taxes F Other Receipts
15 10
(Billions of dollars)

(Billions of dollars)

(Billions of dollars)
10 4


1980 1990 1999 1980 1990 1999 1980 1990 1999
Year Year Year

Percentage of Total Receipts
49% Individual Income Taxes
9% 10%
13% 47% 10% 11%
Employment Taxes
Corporate Income Taxes
Other Receipts
26% 34%
1980 1990 1999

Source: Economic Report of the President, various editions

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The Financial Sector

Interest Rates, 1929“2000


Prime rate charged by banks

Discount rate, Federal Reserve Bank of New York
1929 1940 1950 1960 1970 1980 1990 2000*
Sources: Economic Report of the President, 1999; The Financial Forecast Center

Consumer Credit Outstanding, 1980“2000
Total Consumer Credit
1980 $350.1 billion
1990 $789.3 billion
2000* $1,362.6 billion

52% 34% 23%
32% 36% 34%

16% 30% 43%
1980 1990 2000*
Total Consumer Credit

Other (includes loans for vacations, education, etc.)
Revolving (includes credit card, check credit)
Source: Board of Governors of the Federal Reserve System

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The Financial Sector

Personal Saving, 1960“2000
Percent of disposable personal income





1960 1970 1980 1990 2000*
Source: U.S. Department of Commerce, Bureau of Economic Analysis

Money Stock, 1970“2000

1970 1980 1990 2000*
M1 = $214.4 M1 = $408.9 M1 = $825.8 M1 = $1,108.6
M2 = $626.5 M2 = $1,601.1 M2 = $3,279.6 M2 = $4,627.7

In billions of dollars
M1 consists of all currency and checkable deposits.
M2 consists of M1 plus noncheckable savings accounts, money market deposit
accounts, time deposits, and money market mutual funds.
Source: Board of Governors of the Federal Reserve System

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The Global Economy

Economic Groups: Population, Exports, and GDP, 1998
In percent of world total





Developing countries Countries in transition Advanced economies
127 countries 28 countries 28 countries
Population Gross Domestic Product
Exports of Goods and Services
Source: International Monetary Fund

Growth Rates in Real GDP, 1980“1998
Percent change at annual rate






1980“89 1990 1995 1998
World Developing Countries
Major Industrial Countries Countries in Transition
Source: International Monetary Fund

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The Global Economy

World Population by Age, 2000“2050

Billions of people

Total: Total: Total:
6.07 billion 7.89 billion 9.29 billion



2000* 2025* 2050*
0“19 Years 20“64 Years 65 and Older
Source: U.S. Bureau of the Census

Countries Ranked by Population, 2000 and 2050
Year 2000* Year 2050*
Population Population
(in millions) Rank (in millions) Rank
China 1,256 1 1,322 (2)
India 1,017 2 1,706 (1)
United States 274 3 394 (3)
Indonesia 219 4 330 (5)
Brazil 173 5 228 (7)
Russia 145 6 121 (13)
Pakistan 141 7 260 (6)
Bangladesh 129 8 211 (8)
Japan 126 9 101 (18)
Nigeria 117 10 337 (4)
Mexico 102 11 167 (10)
Source: U.S. Bureau of the Census

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The Global Economy

Aging Index in Selected Nations of the Americas, 1997 and 2025
United States
Puerto Rico
El Salvador
Venezuela 1997
The aging index indicates the number of persons
Bolivia aged 60 and over compared to every 100 persons
Guatemala under age 15. An aging index of 100 means that
there is an equal number of people over the age
of 60 and under the age of 15.
0 50 100 150 200
Aging Index

Median Age, World, 1975“2025
Median Age, Female
Median Age

Median Age, Both Sexes
Median Age, Male
1975 2000* 2025*
Source: U.S. Bureau of the Census

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The Global Economy

U.S. Exports and Imports, 1950“2000
Billions of current dollars



1950 1960 1970 1980 1990 2000*

Employment and Unemployment, Selected Economies
160 14
European Union
Unemployment Rates** (in percent)

European Union
140 12
Employment (in millions)

120 10
United States
United States
100 8

80 6
60 4

40 2

0 0
1970 1980 1990 2000* 1970 1980 1990 2000*
Year Year
Source: International Monetary Fund
**Based on national definitions

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ability-to-pay principle of taxation capital
balance of payments difference between money paid to,
and received from, other nations in trade; balance on cur-
rent account includes goods and services, merchandise
trade balance counts only goods (p. 478)
ability-to-pay principle of taxation belief that taxes should
balance sheet condensed statement showing assets, liabilities,
be paid according to level of income regardless of benefits
and net worth of an economic unit (p. 416)
received (p. 228)
balanced budget annual budget in which expenditures
absolute advantage country™s ability to produce more of
equal revenues (p. 273)
a given product than can another country (p. 469)
balanced budget amendment constitutional amendment
accelerated depreciation schedule that spreads deprecia-
requiring government to spend no more than it collects
tion over fewer years than normal to generate larger tax
in taxes and other revenues, excluding borrowing (p. 267)
reductions (p. 245)
bank holiday brief period during which all banks or depos-
accelerator change in investment spending caused by a
itory institutions are closed to prevent bank runs (p. 301)
change in overall spending (p. 448)
bankruptcy court-granted permission to an individual or
acid rain pollution in form of rainwater mixed with sulfur
business to cease or delay payment on some or all debts
dioxide, a mild form of sulfuric acid (p. 554)
for a limited amount of time (p. 62)
agency shop arrangement under which non-union mem-
barter economy moneyless economy that relies on trade
bers must pay union dues (p. 201)
or barter (p. 285)
aggregate demand the total quantity of goods and services
base year year serving as point of comparison for other years
demanded at different price levels (p. 444)
in a price index or other statistical measure (p. 218, 351)
aggregate demand curve hypothetical curve showing differ-
bear market period during which stock market prices move
ent levels of real GDP that could be purchased at various
down for several months or years in a row (p. 332)
price levels (p. 444)
benefit principle of taxation belief that taxes should be paid
aggregate supply the total value of goods and services that
according to benefits received regardless of income (p. 227)
all firms would produce in a specific period of time at
Better Business Bureau business-sponsored nonprofit
various price levels (p. 442)
organization providing information on local companies
aggregate supply curve hypothetical curve showing differ-
to consumers (p. 78)
ent levels of real GDP that could be produced at various
bill consolidation loan popular type of consumer loan
price levels (p. 443)
used to pay off multiple existing loans (p. 315)
alternative minimum tax personal income tax rate that
black market market in which economic products are sold
applies to cases where taxes would otherwise fall below a
illegally (p. 505)
certain level (p. 245)
bond formal contract to repay borrowed money and interest
appropriations bill legislation earmarking funds for certain
on the borrowed money at regular future intervals (p. 64)
purposes (p. 261)
boycott protest in the form of a refusal to buy, including
aquifer underground water-bearing rock formation (p. 550)
attempts to convince others to join (p. 195)
arbitration see voluntary arbitration and/or compulsory
break-even point production needed if the firm is to recover
arbitration (p. 202)
its costs; production level where total cost equals total
ASEAN group of ten Southeast Asian nations working to
revenue (p. 131)
promote regional cooperation, economic growth, and
bull market period during which stock market prices move
trade (p. 535)
up for several months or years in a row (p. 332)
assets properties, possessions and claims on others; usually
business cycle systematic changes in real GDP marked by
listed as entries on a balance sheet (p. 416)
alternating periods of expansion and contraction (p. 375)
automatic stabilizer program that automatically provides
business fluctuation changes in real GDP marked by alter-
benefits to offset a change in people™s incomes; unem-
nating periods of expansion and contraction that occur on
ployment insurance, entitlement programs (p. 449)
a less than systematic basis (p. 375)
automation production with mechanical or other processes
that reduces the need for workers (p. 386)
average tax rate total taxes paid divided by the total taxable
income (p. 229)

call option contract giving investors the option to buy
commodities, equities, or financial assets at a specific
future date using a price agreed upon today (p. 333)
capital tools, equipment, and factories used in the production
baby boom historically high birthrate years in the United
of goods and services; one of four factors of production (p. 7)
States from 1946 to 1964 (p. 360)

capital flight consumer price index
capital flight legal or illegal export of a nation™s currency civilian labor force non-institutionalized part of the popu-
and foreign exchange (p. 525) lation, aged 16 and over, either working or looking for a
capital gains profits from the sale of an asset held for job (p. 193)
12 months (p. 246) closed shop illegal arrangement under which workers must
capital good tool, equipment, or other manufactured good join a union before they are hired (p. 200)
used to produce other goods and services; a factor of pro- coins metallic forms of money such as pennies, nickels,
duction (p. 12) dimes, and quarters (p. 413)
capital-intensive production method requiring relatively collateral property or other security used to guarantee
large amounts of capital relative to labor (p. 510) repayment of a loan (p. 511)
capital market market in which financial capital is loaned collective bargaining process of negotiation between union
and/or borrowed for more than one year (p. 325) and management representatives over pay, benefits, and
capitalism economic system in which private citizens own job-related matters (p. 77)
and use the factors of production in order to generate collective farm small farms in the former Soviet Union
profits (p. 46, 492) owned by the state, but operated by families who shared
capital-to-labor ratio measure obtained by dividing the in some of the profits (p. 498)
total capital stock by the labor force (p. 367) collectivization forced common ownership of factors of
cartel group of sellers or producers acting together to raise production; used in the former Soviet Union in agri-
prices by restricting availability of a product; OPEC culture and manufacturing under Stalin (p. 497)
(p. 536) collusion agreements, usually illegal, among producers to
cash flow total amount of new funds the business generates fix prices, limit output, or divide markets (p. 168)
from operations; broadest measure of profits for a firm, command economy economic system characterized by a
includes both net income and non-cash charges (p. 69) central authority that makes most of the major economic
cease and desist order ruling requiring a company to decisions (p. 35)
stop an unfair business practice that reduces or limits commercial bank depository institution that, until the
competition (p. 179) mid-1970s, had the exclusive right to offer checking
census complete count of population, including place of accounts (p. 303)
residence (p. 356) commodity money money that has an alternative use as
center of population point where the country would a commodity; gunpowder, flour, corn (p. 287)
balance if it were flat and everyone weighed the same communism economic and political system in which fac-
(p. 357) tors of production are collectively owned and directed by
central bank bank that can lend to other banks in times of the state; theoretically classless society in which everyone
need, a “bankers™ bank” (p. 301) works for the common good (p. 493)
certificate of deposit receipt showing that an investor has company union union organized, supported, and even
made an interest-bearing loan to a financial institution financed by an employer (p. 195)
(p. 314) comparable worth doctrine stating that equal pay should
chamber of commerce nonprofit organization of local be given for jobs of comparable difficulty (p. 215)
businesses whose purpose is to promote their interests comparative advantage country™s ability to produce a given
(p. 78) product relatively more efficiently than another country;
change in demand consumers demand different amounts production at a lower opportunity cost (p. 470)
at every price, causing the demand curve to shift to the competition the struggle among sellers to attract consumers
left or the right (p. 96) while lowering costs (p. 48)
change in quantity demanded movement along the demand complements products that increase the value of other
curve showing that a different quantity is purchased in products; products related in such a way that an increase
response to a change in price (p. 95) in the price of one reduces the demand for both (p. 98)
change in quantity supplied change in amount offered for conglomerate firm with four or more businesses making
sale in response to a price change; movement along the unrelated products, with no single business responsible
supply curve (p. 115) for a majority of its sales (p. 71)
change in supply different amounts offered for sale at each constant dollars dollar amounts or prices that have been
and every possible price in the market; shift of the supply adjusted for inflation; same as real dollars (p. 218)
curve (p. 116) consumer good good intended for final use by consumers
charter written government approval to establish a corpora- rather than businesses (p. 12)
tion; includes company name, address, purpose of business, consumer price index index used to measure price changes
number of shares of stock, and other features of the for a market basket of frequently used consumer items
business (p. 63) (p. 352)

consumer sovereignty disposable personal income
deficit spending annual government spending in excess of
consumer sovereignty role of consumer as ruler of the
taxes and other revenues (p. 272)
market when determining the types of goods and services
deflation decrease in the general level of the prices of
produced (p. 50)
goods and services (p. 390)
cooperative nonprofit association performing some kind of
demand combination of desire, ability, and willingness to
economic activity for the benefit of its members (p. 76)
buy a product (p. 89)
corporate income tax tax on corporate profits (p. 235)
demand curve graph showing the quantity demanded at
corporation form of business organization recognized
each and every possible price that might prevail in the
by law as a separate legal entity with all the rights and
market at a given time (p. 91)
responsibilities of an individual, including the right to
demand deposit account (DDA) account whose funds can
buy and sell property, enter into legal contracts, sue and
be removed by writing a check and without having to gain
be sued (p. 62)
prior approval from the depository institution (p. 303)
cost-benefit analysis way of thinking that compares the
demand elasticity measure of responsiveness relating change
cost of an action to its benefits (p. 24)
in quantity demanded (dependent variable) to a change in
Council of Economic Advisers three-member group
price (independent variable) (p. 101)
that devises strategies and advises the President of the
demand schedule listing showing the quantity demanded
United States on economic matters (p. 460)
at all possible prices that might prevail in the market at
coupon stated interest on a corporate, municipal or govern-
a given time (p. 90)
ment bond (p. 321)
demographer person who studies growth, density, and
craft union labor union whose workers perform the same
other characteristics of the population (p. 358)
kind of work; same as trade union (p. 194)
dependency ratio ratio of children and elderly per
credit union nonprofit service cooperative that accepts
100 persons who are in the 18“64 working age bracket
deposits, makes loans, and provides other financial
(p. 361)
services (p. 76, 303)
depreciation gradual wear on capital goods during
creditor person or institution to whom money is owed
production (p. 69)
(p. 305)
depression state of the economy with large numbers
creeping inflation relatively low rate of inflation, usually
of unemployed, declining real incomes, overcapacity
1 to 3 percent annually (p. 390)
in manufacturing plants, general economic hardship
crowding-out effect higher than normal interest rates and
(p. 376)
diminished access to financial capital faced by private
depression scrip currency issued by towns, chambers of
investors when government increases its borrowing in
commerce, and other civic bodies during the Great
financial markets (p. 277)
Depression of the 1930s (p. 377)
crude birthrate number of live births per 1,000 people (p. 524)
deregulation relaxation or removal of government regula-
currency paper component of the money supply, today tions on business activities (p. 304)
consisting of Federal Reserve notes (p. 413) developing country country whose average per capita
current dollars dollar amounts or prices that are not income is only a fraction of that in more industrialized
adjusted for inflation (p. 218) countries (p. 521)
current GDP Gross Domestic Product measured in current diminishing marginal utility decreasing satisfaction or
prices, unadjusted for inflation (p. 353) usefulness as additional units of a product are acquired
current yield bond™s annual coupon interest divided by (p. 93)
purchase price; measure of a bond™s return (p. 321) diminishing returns stage of production where output
customs duty tax on imported products (p. 236) increases at a decreasing rate as more units of variable
customs union group of countries that have agreed to input are added (p. 125)
reduce trade barriers (p. 535) discomfort index unofficial statistic that is the sum of
cyclical unemployment unemployment directly related to monthly inflation and the unemployment rate; same
swings in the business cycle (p. 386) as misery index (p. 438)
discount rate interest rate that the Federal Reserve System
charges on loans to the nation™s financial institutions
(p. 422)
discretionary spending spending for federal programs that
default the act of not repaying borrowed money (p. 525) must receive annual authorization (p. 260)
deficiency payment cash payment making up the difference disposable personal income personal income less individual
between the market price and the target price of an agri- income taxes; total income available to the consumer sec-
cultural crop (p. 153) tor after income taxes (p. 346)

distribution of income federal budget deficit
distribution of income way in which the nation™s income elasticity a measure of responsiveness that tells us how a
is divided among families, individuals, or other designated dependent variable such as quantity responds to a change
groups (p. 258) in an independent variable such as price (p. 101)
dividend check paid to stockholders, usually quarterly, rep- embargo prohibition on the export or import of a product
resenting portion of corporate profits (p. 63) (p. 546)
division of labor division of work into a number of separate entitlement program or benefit using established eligibility
tasks to be performed by different workers; same as requirements to provide health, nutritional, or income
specialization (p. 16) supplements to individuals (p. 278)
DJIA see Dow-Jones Industrial Average (p. 331) entrepreneur risk-taking individual in search of profits;
double taxation feature of taxation that allows stockholders™ one of four factors of production (p. 8)
dividends to be taxed both as corporate profit and as per- equilibrium price price where quantity supplied equals
sonal income (p. 65) quantity demanded; price that clears the market (p. 144)
Dow-Jones Industrial Average (DJIA) statistical series of equilibrium wage rate wage rate leaving neither a surplus
30 representative stocks used to monitor price changes nor a shortage in the market (p. 207)
on the New York Stock Exchange (p. 332) equities stocks that represent ownership shares in
corporations (p. 328)
estate tax tax on the transfer of property when a person dies
(p. 235)
euro single currency of European Union (p. 535)
easy money policy monetary policy resulting in lower European Union successor of the European Community
interest rates and greater access to credit; associated with established in 1993 by the Maastricht Treaty (p. 535)
an expansion of the money supply (p. 419) excess reserves financial institution™s cash, currency, and
e-commerce electronic business or exchange conducted reserves not needed to back existing loans; potential
over the Internet (p. 129) source of new loans (p. 416)
econometric model macroeconomic model using algebraic excise tax general revenue tax levied on the manufacture
equations to describe how the economy behaves and is or sale of selected items (p. 235)
expected to perform in the future (p. 379) expansion period of growth of real GDP; recovery from
economic growth sustained period during which a nation™s recession (p. 376)
total output of goods and services increases (p. 15) exports the goods and services that a nation produces and
economic interdependence economic activities in one then sells to other nations (p. 467)
part of the country or world affect what happens expropriation government confiscation of private- or for-
elsewhere (p. 17) eign-owned goods without compensation (p. 534)
economic model set of assumptions in a table, graph, or external debt borrowed money that a country owes to for-
equations used to describe or explain economic behavior eign countries and banks (p. 525)
(p. 143) externality economic side effect that affects an uninvolved
economic product good or service that is useful, relatively third party (p. 175)
scarce, and transferable to others (p. 12)
economic system organized way a society provides for the
wants and needs of its people (p. 33)
economics social science dealing with the study of how
people satisfy seemingly unlimited and competing wants fact-finding agreement between union and management
with the careful use of scarce resources (p. 6) to have a neutral third party collect facts about a dispute
economies of scale increasingly efficient use of personnel, and present non-binding recommendations (p. 202)
plant, and equipment as a firm becomes larger (p. 170) factor market market where productive resources are
economy see economic system (p. 33) bought and sold (p. 14)
Efficient Market Hypothesis (EMH) argument that stocks factors of production productive resources that make
are always priced about right, and that bargains are hard up the four categories of land, capital, labor, and
to find because they are closely watched by so many entrepreneurship (p. 7)
investors (p. 329) family two or more persons living together that are related
elastic type of elasticity where the percentage change by blood, marriage, or adoption (p. 346)
in the independent variable (usually price) causes a federal budget annual plan outlining proposed expendi-
more than proportionate change in the dependent tures and anticipated revenues (p. 260)
variable (usually quantity demanded or supplied) federal budget deficit excess of federal expenditures over
(p. 102) tax and revenue collections (p. 261)

federal budget surplus geographic monopoly
federal budget surplus federal budget that shows a positive food stamps government-issued coupons that can be
balance after expenditures are subtracted from revenues exchanged for food (p. 397)
(p. 261) foreign exchange foreign currencies used by countries to
federal debt total amount of money the federal government conduct international trade (p. 481)
has borrowed from others (p. 273) foreign exchange rate price of one country™s currency in
Federal Reserve note currency issued by the Fed that terms of another currency (p. 482)
eventually replaced all other types of federal currency 401(k) plan a tax-deferred investment and savings plan
(p. 301) that acts as a personal pension fund for employees
Federal Reserve System privately owned, publicly con- (p. 320)
trolled, central bank of the United States (p. 301) fractional reserve system system requiring financial institu-
fertility rate number of births that 1,000 women are tions to set aside a fraction of their deposits in the form
expected to undergo in their lifetime (p. 358) of reserves (p. 415)
fiat money money by government decree; has no alterna- free enterprise economy in which competition is allowed
tive value or use as a commodity (p. 287) to flourish with a minimum of government interference;
FICA Federal Insurance Contributions Act; tax levied on term used to describe the American economy (p. 46)
employers and employees to support Social Security and free enterprise economy market economy in which pri-
medicare (p. 233) vately owned businesses have the freedom to operate for
finance company firm that makes loans directly to con- a profit with limited government intervention; same
sumers and specializes in buying installment contracts as private enterprise economy (p. 24)
from merchants who sell on credit (p. 315) free-trade area group of countries that have agreed to
financial asset document that represents a claim on the reduce trade barriers among themselves, but lack a com-
income and property of the borrower; CDs, bonds, Trea- mon tariff barrier for nonmembers (p. 535)
sury bills, mortgages (p. 314) free trader individual who favors fewer or even no trade
financial capital money used to buy the tools and equip- restrictions (p. 474)
ment used in production (p. 7) frictional unemployment unemployment caused by workers
financial intermediary institution that channels savings to changing jobs or waiting to go to new ones (p. 384)
investors; banks, insurance companies, savings and loan fringe benefit benefit received by employees in addition
associations, credit unions (p. 314) to wages and salaries; includes paid vacations, sick leave,
financial system network of savers, investors, and financial retirement, insurance (p. 57)
institutions that work together to transfer savings to futures contracts to buy or sell commodities or financial
investment uses (p. 314) assets at a specific future date, using a price agreed upon
fiscal policy use of government spending and revenue col- today (p. 333)
lection measures to influence the economy (p. 447) futures contract an agreement to buy or sell at a specific
fiscal year 12-month financial planning period that may date in the future at a predetermined price (p. 333)
not coincide with the calendar year; October 1 to Septem- futures market market where futures contracts are bought
ber 30 for the federal government (p. 260) and sold (p. 333)
Five-Year Plan comprehensive centralized economic plan
used by the Soviet Union and China to coordinate devel-
opment of agriculture and industry (p. 497)
fixed cost cost of production that does not change when
output changes (p. 127) galloping inflation relatively intense inflation, usually rang-
fixed exchange rate system under which the value of cur- ing from 100 to 300 percent annually (p. 390)
rencies were fixed in relation to one another; the exchange gasohol mixture of 90 percent unleaded gasoline and
rate system in effect until 1971 (p. 482) 10 percent grain alcohol (p. 549)
fixed income income that does not increase even though GDP gap difference between what the economy can and
prices go up (p. 42) does produce; annual opportunity cost of unemployed
flat tax proportional tax on individual income after a speci- resources (p. 438)
fied threshold has been reached (p. 248) GDP in constant dollars Gross Domestic Product after
flexible exchange rate system that relies on supply and adjustments for inflation; also called GDP in constant
demand to determine the value of one currency in terms (chained) dollars; same as real GDP (p. 353)
of another; exchange rate system in effect since 1971, general partnership see partnership (p. 60)
same as floating exchange rate (p. 483) geographic monopoly market situation where a firm has a
floating exchange rate see flexible exchange rate (p. 483) monopoly because of its location or the small size of the
floor price see price floor (p. 152) market (p. 170)

gift tax intergovernmental expenditures
gift tax tax on donations of money or wealth that is paid
by the donor (p. 235)
giveback wage, fringe benefit, or work rule given up when
renegotiating a contract (p. 212) imperfect competition market structure where all condi-
glass ceiling seemingly invisible barrier hindering advance- tions of pure competition are not met; monopolistic com-
ment of women and minorities in a male-dominated petition, oligopoly, and monopoly (p. 166)
organization (p. 214) implicit GDP price deflator index used to measure price
glut substantial oversupply of a product (p. 553) changes in Gross Domestic Product (p. 353)
gold certificate paper currency backed by gold; issued in imports the goods and services that a nation buys from
1863 and popular until recalled in 1934 (p. 295) other nations (p. 468)
gold standard monetary standard under which a country™s incidence of a tax final burden of a tax (p. 225)
currency is equivalent to, and can be exchanged for, a income effect that portion of a change in quantity demanded
specified amount of gold (p. 296) caused by a change in a consumer™s real income when the
good tangible economic product that is useful, relatively price of a product changes (p. 96)
scarce, transferable to others; used to satisfy wants and income statement report showing a business™s sales,
needs (p. 12) expenses, and profits for a certain period, usually three
Gosplan central planning authority in former Soviet Union months or a year (p. 68)
that devised and directed Five-Year plans (p. 497) inconvertible fiat money standard fiat money that cannot
government monopoly monopoly created and/or owned be exchanged for gold or silver; Federal Reserve notes
by the government (p. 170) today (p. 297)
grant-in-aid transfer payment from one level of government independent union labor union not affiliated with the
to another not involving compensation (p. 257) AFL-CIO (p. 198)
Great Depression greatest period of economic decline in index of leading indicators composite index of 11 economic
United States history, lasting from approximately 1929 series that move up and down in advance of changes in
to 1939 (p. 196) the overall economy; statistical series used to predict busi-
Great Leap Forward China™s disastrous second five-year ness cycle turning points (p. 380)
plan begun in 1958 that forced collectivization of agricul- indexing adjustment of tax brackets to offset the effects of
ture and rapid industrialization (p. 506) inflation (p. 233)
grievance procedure contractual provision outlining the individual income tax tax levied on the wages, salaries, and
way future disputes and grievance issues will be resolved other income of individuals (p. 226)
(p. 202) Individual Retirement Account (IRA) retirement account
Gross Domestic Product (GDP) dollar value of all final in the form of a long-term time deposit, with annual con-
goods, services, and structures produced within a country™s tributions of up to $2,000 per year not taxed until with-
national borders during a one-year period (p. 9, 341) drawn during retirement (p. 324)
Gross National Product (GNP) total dollar value of all industrial union labor union whose workers perform differ-
final goods, services, and structures produced in one year ent kinds of work (p. 195)
with labor and property supplied by a country™s residents, inelastic type of elasticity where the percentage change in
regardless of where the production takes place; largest the independent variable (usually price) causes a less than
measure of a nation™s income (p. 344) proportionate change in the dependent variable (usually
growth triangle table showing the rates of growth of a sta- quantity demanded or supplied) (p. 102)
tistical series between any two dates (p. 364) infant industries argument argument that new and emerg-
ing industries should be protected from foreign competition
until they are strong enough to compete (p. 474)
inflation rise in the general level of prices (p. 42, 350)
infrastructure the highways, mass transit, communications,
horizontal merger combination of two or more firms pro- power, water, sewerage and other public goods needed to
ducing the same kind of product (p. 71) support a population (p. 510)
household basic unit of consumer sector consisting of all injunction court order issued to prevent a company or
persons who occupy a house, apartment, or separate living union from taking action during a labor dispute (p. 203)
quarters (p. 346) interest payment made for the use of borrowed money;
human capital sum of peoples™ skills, abilities, health, and usually paid at periodic intervals for long-term bonds or
motivation (p. 16) loans (p. 64)
hyperinflation abnormal inflation in excess of 500 percent intergovernmental expenditures funds that one level of
per year; last stage of a monetary collapse (p. 390) government transfers to another level for spending (p. 268)

intergovernmental revenue marginal analysis
intergovernmental revenue funds one level of government Law of Variable Proportions rule stating that short-run
receives from another level of government (p. 238) output will change as one input is varied while others are
intermediate products products directly excluded from held constant (p. 122)
GDP because they are components of other final products legal reserves currency and deposits used to meet the
included in GDP; new tires and radios for use on new reserve requirement (p. 415)
cars (p. 343) legal tender fiat currency that must be accepted for pay-
Internal Revenue Service (IRS) branch of Treasury Depart- ment by decree of government (p. 295)
ment that collects taxes (p. 232) liabilities debts and obligations owed to others; usually
International Bank for Reconstruction and Development listed as entries on a balance sheet (p. 416)
see World Bank (p. 526) life expectancy average remaining life span in years for per-
International Monetary Fund (IMF) international organiza- sons who attain a given age (p. 358)
tion that offers advice and financial assistance to nations so limited life situation in which a firm legally ceases to exist
that their currencies can compete in open markets (p. 526) when an owner dies, quits, or a new owner is added;
inventory stock of goods held in reserve; includes finished applies to sole proprietorships and partnerships (p. 59)
goods waiting to be sold and raw materials to be used in limited partnership form of partnership where one or
production (p. 59) more partners are not active in the daily running of the
investment tax credit tax credit given for purchase of business, and whose liability for the partnership™s debt is
equipment (p. 245) restricted to the amount invested in the business (p. 62)
line-item veto power to cancel specific budget items with-
out rejecting the entire budget (p. 278)
liquidity potential for being readily convertible into cash
or other financial assets (p. 417)
keiretsu independently owned group of Japanese firms lockout management refusal to let employees work until
joined and governed by an external board of directors company demands are met (p. 195)
in order to regulate competition (p. 510) long run production period long enough to change amount
Keynesian economics government spending and taxation of variable and fixed inputs used in production (p. 122)
policies suggested by John Maynard Keynes to stimulate Lorenz curve curve showing how much the actual distribu-
the economy; synonymous with fiscal policies or demand- tion of income differs from an equal distribution (p. 394)
side economics (p. 448) luxury good good for which demand increases faster than
income when income rises (p. 235)

labor people with all their abilities and efforts; one of four
factors of production, does not include the entrepreneur M1 money supply components conforming to money™s
(p. 8) role as medium of exchange; coins, currency, checks,
labor mobility ability and willingness of labor to relocate, other demand deposits, traveler™s checks (p. 429)
usually for higher wages (p. 209) M2 money supply components conforming to money™s
labor productivity growth rate of total output per unit of role as a store of value; M1, savings deposits, time
labor input; measure of productive efficiency (p. 368) deposits (p. 430)
labor union organization that works for its members™ inter- macroeconomic equilibrium level of real GDP consistent
ests concerning pay, working hours, health coverage, with a given price level; intersection of aggregate supply
fringe benefits, other job related matters (p. 76) and aggregate demand (p. 445)
Laffer curve graph showing that lower tax rates will suppos- macroeconomics that part of economic theory dealing
edly stimulate higher tax revenues (p. 452) with the economy as a whole and decision making by
laissez-faire philosophy that government should not inter- large units such as governments and unions (p. 193)
fere with business activity (p. 163) mandatory spending federal spending authorized by law
land natural resources or “gifts of nature” not created by that continues without the need for annual approvals of


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