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Glossary
Explore our glossary of common Economics and Personal Finance terms and discover related resources.
Ability-to-pay principle
The idea that taxes should be levied on a person according to how well that person can shoulder that burden.
Absolute advantage
The ability to produce more of a good or service than another producer using the same amount of resources as that producer.
Absolute good
A value that cannot be traded off against other things that are highly valued by individuals. Many moral or ethical laws are considered to be absolute goods by the supporters (or advocates) of such laws.
Actual output (real GDP)
The amount that an economy actually produces, as measured by real GDP.
Adjustable-rate mortgage (ARM)
A mortgage that permits the lender to periodically adjust the interest rate on the basis of changes in a specified index.
Adjusted gross income
Gross income minus specific adjustments.
Administered rate
An interest rate that is set directly rather than being influenced by the market forces of supply and demand.
Adverse selection
The tendency of insurance to be purchased by those most likely to make claims.
Advertising
Communication used by businesses to persuade consumers to buy a good or service.
Aggregate demand curve
A graphical depiction of the amounts of real output (gross domestic product [GDP]) that buyers collectively desire to purchase at each possible price level.
Aggregate supply curve
A graphical depiction of the amounts of real output (gross domestic product [GDP]) that businesses will choose to produce at each possible price level.
Algorithm
A process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer.
Allocation
Ways in which to distribute goods, services or resources.
Alternatives
The different possibilities to choose from in a given situation.
Ample reserves regime
The name of the Fed's approach to implementing monetary policy. This regime features a sizable level of reserves in the banking system such that small adjustments to the level do not affect the market-determined federal funds rate.
Anchoring effect
The tendency for a person to rely heavily on the first piece of information they receive when making decisions.
Annual percentage rate (APR)
The percentage cost of credit on an annual basis and the total cost of credit to the consumer. APR combines the interest paid over the life of the loan and all fees that are paid up front.
Annuity
A series of fixed payments of the same amount paid at regular intervals (i.e., every week, month, or pay period) over a specified period of time.
Antitrust law
Legislation that prohibits practices that restrain trade, such as price fixing and business arrangements designed to achieve monopoly power.
Appreciation
An increase in value. Currency appreciation is an increase in the value of one currency relative to another.
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