Covering Economics: Glossary

Balance of payments

A financial statement of a country’s economic transactions with the rest of the world, recording income and expenditure.

Basis point

1/100th of 1 percent. Often used to describe changes in interest rates. A rate that declines 25 basis points drops by one-quarter of 1 percent.

Consumer Price Index (CPI)

An index of the price of a basket of commonly purchased consumer goods. Here’s a calculator.

Exchange rate

The price of one currency expressed in another currency. Here’s a converter.

Federal funds rate

The interest rate banks and similar organizations charge each other for overnight loans. The Fed will buy and sell securities to ensure the actual Federal Funds Rate is in line with its target for the Federal Funds Rate.

Fiscal policy

The government’s use of its taxation and spending activities to influence the economy.

Gross Domestic Product (GDP)

The total value of the final goods and services produced by an economy.

Index

A number showing the size of some variable relative to a given starting point, or base.

Monetary policy

The government’s use of interest rates or availability of credit to influence the economy.

Nominal

A value measured without adjusting for inflation.

Quantitative easing

The Federal Reserve prints money and uses the money to purchase government bonds held by the banking sector, to increase the money supply. Typically, the Fed will do this only when interest rates are very low and, as such, the conventional monetary-policy technique of reducing interest rates is ineffective.

Real

A value adjusted for inflation (also known as measuring in constant dollars).

Reserves

Money the banks hold as cash in their vaults or as deposits with the Fed.

Seasonal adjustment

Adjusting economic data to remove regular seasonal factors (such as harvests or holiday shopping), to reveal the underlying behavior of the data.

Unemployment rate

The number of unemployed as a percentage of those employed and unemployed.

For more definitions of economic and financial terms, try The Financial Writer’s Stylebook by Chris Roush and Bill Cloud.

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