Absolute Advantage
The ability of a country or producer to produce a good or service using fewer resources than any competitor.
Adverse Selection
When information asymmetry causes lower-quality counterparties to disproportionately participate in a market.
Aggregate Demand
The total demand for all goods and services in an economy at a given price level and time period.
Aggregate Supply
The total quantity of goods and services that producers in an economy are willing to supply at a given price level.
Animal Spirits
John Maynard Keynes's term for the human confidence and intuition that drives investment and economic activity beyond purely rational models.
Austerity
Government policies of cutting public spending and raising taxes to reduce a budget deficit.
Automatic Stabilizers
Built-in fiscal mechanisms that automatically increase spending or cut taxes during recessions without new legislation.
Balance of Payments
A record of all financial transactions between a country and the rest of the world.
Balance of Trade
The difference between the value of a country's exports and the value of its imports over a given period.
Balance Sheet Recession
A recession caused by widespread private-sector debt reduction after a financial bubble bursts, leaving borrowers focused on repaying debt rather than spending.
Bank Run
A crisis where many depositors simultaneously withdraw funds from a bank out of fear it will fail.
Barriers to Entry
Economic, regulatory, or structural obstacles that make it difficult or costly for new competitors to enter an established market.
Behavioral Finance
The study of how psychological biases and emotions influence investor decision-making and asset prices.
Budget Surplus
When a government collects more revenue than it spends in a given fiscal year.
Business Confidence
A measure of how optimistic or pessimistic business executives are about current and future economic and business conditions.
Business Cycle
The recurring pattern of expansion, peak, contraction, and trough in economic activity.
Capital Controls
Government-imposed restrictions on the flow of money and investments across a country's borders, used to manage exchange rate stability and financial crises.
Central Bank
A national institution that manages the money supply, sets interest rates, and oversees financial stability.
Circular Flow
An economic model showing how money flows between households and firms through product and factor markets.
Coincident Indicators
Economic data points that move in tandem with the overall economy, reflecting current conditions.
Comparative Advantage
The ability to produce a good or service at a lower opportunity cost than competitors.
CPI
A measure of the average change in prices paid by consumers for a basket of goods and services.
Consumer Surplus
The difference between the maximum a consumer is willing to pay and the actual market price they pay.
Consumption Function
The economic relationship between total consumer spending and disposable income.
Contractionary Policy
Government or central bank actions designed to slow economic growth and reduce inflation by tightening money supply or reducing spending.
Core Inflation
Inflation measured excluding food and energy prices, which are highly volatile.
Cost-Benefit Analysis
A systematic method of comparing the total expected costs and benefits of a decision to determine whether it creates net positive value.
Cost-Push Inflation
Inflation caused by rising production costs that force prices higher while reducing economic output.
Creative Destruction
The process by which new innovations continuously replace existing industries, driving long-run economic progress.
Credit Cycle
The recurring expansion and contraction of credit availability in an economy, closely tied to the business cycle.
Cross-Price Elasticity
A measure of how the quantity demanded of one good changes in response to a price change in another good.
Crowding In
The stimulative effect by which increased government spending encourages additional private investment by boosting demand and business confidence.
Crowding Out
The reduction in private sector investment caused by increased government borrowing.
Currency Crisis
A sudden, severe loss of confidence in a country's currency that triggers rapid depreciation, capital flight, and often a broader financial and economic crisis.
Currency Devaluation
A deliberate downward adjustment of a currency's value relative to other currencies.
Current Account
A measure of a country's trade in goods, services, income, and transfers with the rest of the world.
Cyclical Unemployment
Unemployment caused by a decline in economic activity during a recession or downturn.
Deadweight Loss
The loss of economic efficiency caused by market distortions such as taxes or price controls.
Debt Ceiling
The statutory limit on the total amount of money the US federal government is authorized to borrow to meet its obligations.
Debt Deflation
A self-reinforcing economic spiral in which falling prices increase the real burden of debt, causing further spending cuts and deeper deflation.
Deflation
A sustained decrease in the general price level of goods and services.
Demand-Pull Inflation
Inflation caused by aggregate demand outpacing aggregate supply in an economy.
Diminishing Returns
The principle that adding more of one input while holding others constant eventually yields smaller output increments.
Discount Rate
The interest rate the Federal Reserve charges banks for short-term emergency loans from its discount window.
Disinflation
A slowdown in the rate of inflation — prices still rising, but more slowly.
Dutch Disease
Economic harm to a country's other industries caused by a natural resource boom.
Economic Bubble
A rapid surge in asset prices far above intrinsic value driven by speculation, followed by a sharp collapse.
Economic Depression
A severe and prolonged downturn in economic activity characterized by high unemployment, collapsing credit, and sharp GDP contraction.
Economic Efficiency
A state in which resources are allocated to their highest-valued uses with no waste, producing the maximum output from available inputs.
Economic Growth
An increase in the production of goods and services in an economy over time, typically measured by GDP growth.
Economic Indicator
A statistic that measures the state of the economy, classified as leading, lagging, or coincident to signal future, past, or current conditions.
Economic Profit
Revenue minus all explicit costs and implicit opportunity costs, measuring the true gain above the next best alternative use of resources.
Economic Rent
Payment to a factor of production above the minimum required to keep it in its current use.
Economies of Scale
Cost advantages a firm gains as it increases production, reducing average cost per unit at larger output volumes.
Economies of Scope
Cost savings that arise when a firm produces multiple products jointly more cheaply than separately.
Endogenous Growth
The theory that long-run economic growth is driven by internal factors like innovation and human capital.
Equilibrium Price
The market price at which quantity supplied equals quantity demanded, with no surplus or shortage.
Exchange Rate
The price at which one country's currency can be exchanged for another's.
Expansionary Policy
Government or central bank actions designed to stimulate economic growth by increasing the money supply or raising government spending.
Externality
A cost or benefit imposed on third parties not involved in an economic transaction.
Factors of Production
The inputs used to produce goods and services: traditionally classified as land, labor, capital, and entrepreneurship.
Budget Deficit
The shortfall when a government spends more than it collects in revenue in a given year.
Fed Funds Rate
The overnight interest rate at which US banks lend reserves to each other, set by the Federal Reserve.
Federal Reserve
The central banking system of the United States.
Financial Crisis
A severe disruption in financial markets characterized by sharp asset price declines, institutional failures, and credit market freezes.
Fiscal Multiplier
The ratio showing how much GDP changes for each dollar of government spending or tax change.
Fiscal Policy
Government use of spending and taxation to influence the economy.
Fiscal Stimulus
Government spending increases or tax cuts designed to boost economic activity during a downturn.
FOMC
The Federal Reserve committee responsible for setting US monetary policy and interest rate decisions.
Fractional Reserve Banking
A banking system in which banks hold only a fraction of deposits in reserve and lend the rest.
Free-Rider Problem
The tendency to benefit from a public good without contributing to its cost.
Free Trade
International trade between countries with no government-imposed restrictions or tariffs.
Frictional Unemployment
Temporary unemployment that occurs when workers are between jobs or searching for new employment.
Full Employment
The level of employment at which all workers who want to work at prevailing wages are employed, with only frictional and structural unemployment remaining.
Game Theory
The mathematical study of strategic decision-making among rational actors.
GDP Per Capita
A country's gross domestic product divided by its population, measuring average economic output per person.
GDP
The total monetary value of all goods and services produced within a country's borders in a given period.
Gig Economy
A labor market characterized by short-term contracts and platform-based work rather than permanent employment.
Gini Coefficient
A statistical measure of income or wealth inequality ranging from 0 (perfect equality) to 1 (maximum inequality).
GNP
The total value of goods and services produced by a country's residents, regardless of location.
Hot Money
Short-term speculative capital that flows rapidly between countries or asset classes in search of the highest available interest rates or returns.
Human Capital
The economic value of a person's knowledge, skills, and experience that contributes to their productive capacity.
Hyperinflation
Extremely rapid and uncontrolled inflation, typically defined as prices rising more than 50% per month.
Hysteresis
The tendency of economic shocks to produce lasting effects — especially elevated unemployment — long after the original shock has passed.
Income Effect
The change in a consumer's purchasing power — and thus quantity demanded — caused by a change in the price of a good they buy.
Income Elasticity
A measure of how much the quantity demanded of a good changes in response to a change in consumer income.
Inflation Expectations
Forecasts of future price increases held by consumers, businesses, and investors that shape current economic behavior.
Information Asymmetry
A situation where one party in a transaction has more or better information than the other.
Invisible Hand
Adam Smith's metaphor for how self-interested market participants inadvertently promote broader economic efficiency.
Keynesian Economics
An economic theory arguing that aggregate demand — driven by government spending and fiscal policy — is the primary determinant of short-run economic output and employment.
Labor Force Participation Rate
The percentage of the working-age population that is employed or actively looking for work.
Labor Market
The market in which workers offer their services to employers, who offer jobs and wages in return.
Labor Productivity
The amount of economic output produced per unit of labor input, typically measured per hour worked.
Laffer Curve
A theoretical curve showing that tax revenue peaks at some intermediate tax rate, declining at both extremes.
Lagging Indicators
Economic data points that change after the broader economy has already shifted.
Law of Demand
The principle that consumers buy less of a good as its price rises, all else equal.
Law of Supply
The principle that producers supply more of a good as its price rises, all else equal.
Leading Indicators
Economic data points that tend to change before the broader economy shifts, used to predict future conditions.
Lender of Last Resort
An institution, typically a central bank, that provides emergency liquidity to prevent systemic financial collapse.
LIBOR
The London Interbank Offered Rate — a historically key benchmark for global short-term lending, replaced by SOFR in 2023.
Liquidity Preference
Keynes's theory that people prefer holding liquid cash over illiquid assets, which determines the equilibrium interest rate.
Liquidity Trap
A situation where interest rates are at or near zero and monetary policy loses its effectiveness.
Loanable Funds
The pool of savings available for borrowing, with interest rates set by supply and demand.
Marginal Cost
The increase in total production cost from producing one additional unit of output.
Marginal Utility
The additional satisfaction or benefit a consumer derives from consuming one more unit of a good or service.
Market Equilibrium
The state in which the quantity of a good supplied equals the quantity demanded, producing a stable market price.
Market Failure
A situation where free markets fail to allocate resources efficiently, justifying possible government intervention.
Market Power
The ability of a firm to profitably set prices above competitive levels without losing all of its customers.
Menu Costs
The fixed costs businesses incur when changing prices, which can cause price stickiness.
Microeconomics
The branch of economics that studies how individual households, firms, and markets make decisions about allocating scarce resources and setting prices.
Minimum Wage
The legally mandated minimum hourly pay an employer must pay workers.
Mixed Economy
An economic system combining private market enterprise with government regulation and public ownership of certain industries.
Monetary Policy
Central bank actions to control money supply and interest rates to achieve economic goals.
Money Multiplier
The maximum amount of money the banking system can create from each dollar of central bank reserves.
Money Supply
The total amount of money circulating in an economy, measured in aggregates.
Monopoly
A market structure where a single seller controls the entire supply, enabling above-competitive pricing.
Moral Hazard
A situation where one party takes on excessive risk because they do not bear the full consequences of their actions.
Multiplier Effect
The amplified impact of an initial change in spending on total economic output.
Nash Equilibrium
A stable strategic outcome where no player can improve their result by changing strategy unilaterally.
National Debt
The total amount of money a national government owes to creditors, accumulated from past budget deficits.
Natural Monopoly
A market structure where a single firm can supply the entire market at lower cost than multiple competitors.
Natural Rate of Interest
The real interest rate consistent with an economy at full employment and stable inflation, also known as r-star or the neutral rate.
Natural Rate of Unemployment
The minimum unemployment rate consistent with stable inflation, reflecting frictional and structural unemployment.
Net Exports
The difference between a country's total exports and total imports, representing the trade balance component of GDP.
Network Effects
The phenomenon whereby a product or service becomes more valuable to each user as more people use it.
Nominal GDP
The total value of an economy's output measured at current market prices, unadjusted for inflation.
Nominal Interest Rate
The stated interest rate on a loan or investment before adjusting for inflation.
Oligopoly
A market structure dominated by a small number of large firms, each of which must account for the actions of its rivals when making decisions.
Open Market Operations
Central bank purchases or sales of government securities to control the money supply and interest rates.
Opportunity Cost
The value of the best alternative foregone when a choice is made.
Output Gap
The difference between actual economic output and the economy's potential output.
Paradox of Thrift
The Keynesian observation that when all individuals simultaneously increase saving, total savings falls because lower spending reduces national income.
Perfect Competition
A theoretical market structure with many buyers and sellers, identical products, free entry and exit, and perfect information, resulting in price-taking behavior.
Phillips Curve
The historical inverse relationship between unemployment and inflation: lower unemployment tends to produce higher inflation.
Precautionary Savings
Savings accumulated by households to self-insure against uncertain future income losses or unexpected expenses.
Price Ceiling
A government-set maximum price that sellers cannot legally exceed, typically placed below the market equilibrium price to make essential goods more affordable.
Price Discrimination
A pricing strategy in which a seller with market power charges different prices to different buyers for the same good or service.
Price Elasticity
A measure of how sensitive demand or supply is to a change in price.
Price Floor
A government-set minimum price for a good or service, above the equilibrium price, intended to benefit producers.
Price Stickiness
The tendency of prices to respond slowly to changes in supply and demand conditions.
Prime Rate
The interest rate commercial banks charge their most creditworthy customers, based on the federal funds rate.
Principal-Agent Problem
The conflict arising when an agent makes decisions on behalf of a principal but has different incentives.
PPI
A measure of average price changes received by domestic producers for their goods and services.
Producer Surplus
The difference between the price a seller actually receives and the minimum price they would have accepted.
PPF
A curve showing the maximum combinations of two goods an economy can produce with its available resources.
Protectionism
Economic policy of restricting imports to shield domestic industries from foreign competition.
Public Good
A good that is non-excludable and non-rival, typically undersupplied by private markets.
Quantitative Easing
A central bank policy of purchasing assets to inject money into the economy.
Quantitative Tightening
A central bank policy of reducing its balance sheet by selling bonds or letting them mature without reinvestment.
Quantity Theory of Money
The theory that price levels rise proportionally with the money supply, expressed as MV = PQ.
Rational Expectations
The theory that people form unbiased economic forecasts using all available information.
Real Wage
A worker's nominal wage adjusted for inflation, measuring the actual purchasing power of their earnings.
Recession
A significant decline in economic activity lasting more than a few months, typically defined as two consecutive quarters of negative GDP growth.
Rent-Seeking
The pursuit of wealth through political or regulatory manipulation rather than productive activity.
Reserve Requirement
The minimum fraction of deposits a bank must hold in reserve rather than lend out.
Savings-Investment Identity
The national income accounting identity stating that in a closed economy, aggregate saving must equal aggregate investment.
Secular Stagnation
A theory describing prolonged periods of below-potential economic growth caused by persistently weak aggregate demand and excess savings over investment.
Sovereign Default
A situation in which a national government fails to meet its debt obligations, triggering financial and economic crisis.
Stagflation
The coexistence of high inflation, high unemployment, and slow economic growth.
Structural Unemployment
Long-term unemployment caused by a fundamental mismatch between workers' skills and available jobs.
Substitution Effect
The tendency for consumers to replace more expensive goods with cheaper alternatives when relative prices change.
Sunk Cost
A cost already incurred that cannot be recovered, and which rational decision-making should ignore.
Supply Elasticity
A measure of how responsive the quantity supplied of a good is to a change in its price.
Supply Shock
A sudden unexpected event that significantly disrupts the supply of a key commodity or input.
Supply-Side Economics
The theory that economic growth is best achieved by reducing taxes on producers and cutting regulations.
Systemic Risk
The risk of collapse across an entire financial system due to interconnected institutions and cascading failures.
Tariff
A tax imposed by a government on imported or exported goods.
Terms of Trade
The ratio of a country's export prices to its import prices.
Trade Deficit
When a country imports more goods and services than it exports.
Trade Surplus
When a country's exports exceed its imports in value.
Trade War
A conflict in which countries impose escalating tariffs or trade barriers on each other.
Twin Deficit
The simultaneous occurrence of a government fiscal deficit and a current account deficit in a country's economy.
Unemployment Rate
The percentage of the labor force that is jobless and actively seeking work.
Velocity of Money
The rate at which money circulates through the economy — how many times a dollar is spent in a period.
Wage-Price Spiral
A self-reinforcing cycle in which rising wages increase production costs, pushing prices higher, which then prompts workers to demand further wage increases.
Wealth Effect
The tendency for consumers to spend more when the value of their assets rises, even if their income has not changed.
Yield Curve
A graph plotting bond yields across different maturities, used to gauge economic and interest rate expectations.
Zero Lower Bound
The constraint that limits central banks from cutting nominal interest rates below zero.