Glossary for Vocabulary Terms

Glossary for Vocabulary Terms
CE.11 - The Government's Role in the Economy

antitrust laws - laws designed to prevent the formation of monopolies in business, and to encourage competition. (A trust is one form of monopoly.) The most famous of these is the Sherman Antitrust Act, passed in the late 1800s.

business cycle - a pattern in which business and employment levels move through a cycle of expansion, peak, recession, and recovery. The business cycle can be charted by examining economic indicators such as employment, factory output, or the Gross Domestic Product. (The Gross Domestic Product measures the total value of all goods and services produced in the economy.)

consumer rights - a term for the various rights held by individual consumers, such as protection from fraudulent business practices.

contract - a formal, usually written, agreement between two or more parties (individuals or businesses). Contracts are a key part of the system of private property.

currency - the paper money and coins used in a particular country.

discount rate - the rate of interest the Federal Reserve charges when banks need to borrow money. The Federal Reserve can raise or lower this interest rate, which has a predictable effect on interest rates that regular banks charge their customers. Therefore, by changing the discount rate, the Federal Reserve has influence on the overall supply of money in the economy.

Environmental Protection Agency (EPA) - an agency of the federal government that enforces laws designed to protect the environment.

Federal Communications Commission (FCC) - an agency of the federal government that enforces laws regulating radio and TV broadcasting.

Federal Reserve - the central bank of the United States, it acts as the "banker's bank." It issues currency (coins and paper money) to banks. Through its financial actions, it also regulates the total money supply of the nation. The Federal Reserve is often called “The Fed.”

Federal Trade Commission (FTC) - a federal agency that enforces laws regulating business. The agency has the power to investigate and stop unfair business practices.

income tax - a tax based on individual or family income. The tax is “progressive,” which means that the higher one’s income, the higher the tax rate. The income tax was created in the early 1900s as a way of shifting more of the tax burden onto wealthier families.

interest rate - the fee charged borrowers on a loan, expressed as a percentage of the amount borrowed. A ten percent interest rate means that a person who borrows $100,000 for a year would need to pay back the money plus interest of $10,000, for a total of $110,000.

money supply - the amount of money available in the economy. It includes not just coins and paper money, but also money held in certain kinds of bank accounts.

monopoly - a situation where one business controls all or almost all of the sales of a product. In most cases, monopolies are illegal, because in the absence of competition, the business has an unfair advantage over buyers. In certain cases, such as electric service or cable TV, monopolies may be allowed with government regulation of prices.

private property - anything owned and controlled by an individual, a group of individuals, or a business.

public goods and services - goods and services provided by the government, including public schools, parks, police and fire service, 911, national defense, etc.

regulatory agencies - agencies of the government that make sure businesses are acting properly. Example: the FTC (Federal Trade Commission) can investigate and stop unfair business practices.

reserve requirement - the percent of a bank's deposits that must be kept by the bank, rather than loaned out to borrowers. The Federal Reserve can adjust the reserve requirement up or down to help it regulate the nation’s total money supply.

securities (government) - a kind of “IOU” or financial certificate that promises repayment, plus interest, at a future date. The federal government sells these securities (such at “T-bills”) to investors as a way of borrowing money when tax revenue is not enough to meet expenses. In addition, the Federal Reserve may sell or buy government securities in large quantities as a way of regulating the total money supply circulating in the economy.

Sixteenth Amendment - gives the government the power to collect an income tax. Before the ratification of this Amendment in 1913, an income tax like that used today was not permitted by the U.S. Constitution.