Economics and Personal Finance Glossary (E-F)


Earned income- Earned income is the money you get for the work you do. There are two ways to get earned income: You work for someone who pays you or you own or run a business or farm.

Earned income tax credit- A refundable federal tax credit for low-income working people designed to reduce poverty and encourage labor force participation.

Earnings- Money or income received in exchange for labor or services.

Economic equality- A more equal distribution of goods and services to citizens. Also known as economic equity.

Economic equity- A more equal distribution of goods and services to citizens. Also known as economic equality.

Economic growth- A sustained rise over time in a nation’s production of goods and services.

Economic indicator- Statistical data used to determine the health of the economy.

Economic models- Simple depictions of complex ideas.

Economic wants- Desires that can be satisfied by consuming goods and services. Also known as wants.

Economy- A system of production and distribution of resources, goods, and services.

Educational attainment- Highest level of education a student completes (high school, college, graduate).

Efficient market hypothesis (EMH)- The theory that the current price of a stock in a corporation reflects all relevant information about the stock’s current and future earnings prospects.

Elastic currency- Currency whose supply can be increased or decreased to meet the demands of the economy, and used by a central bank to provide financial stability and achieve economic goals.

Elastic demand- The type of demand that exists when the percentage change in quantity demanded is greater than the percentage change in price; that is, consumers are very sensitive to a change in the price of a good or service.

Elasticity of demand- The ratio of the percentage change in quantity demanded of a good or service to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a good or service.

Electronic benefit transfer (EBT)- An electronic system that allows a recipient to receive financial benefits from the government via a debit card. The recipient uses the EBT card to make purchases from retailers.

Elements of a contract- Competent parties, consideration, and mutual agreement are the elements of a contract that must be present to make the contract legal and enforceable. Competent parties are individuals involved in a contract who must be able to understand the conditions of the contract. Consideration refers to the fact that each party of a contract gives up something in exchange for what the other party is providing. Mutual agreement means that each party to the contract must be clear about the essential details, rights, and obligations of the contract.

Embargo- A government order that limits or prohibits trade with a particular country or group of countries.

Employed- People 16 years and older who have jobs.

Employment rate- The percentage of the labor force that is employed.

EMV chip specifications- Specifications developed by Europay, MasterCard, and Visa defining requirements for using chip cards worldwide.

Energy- Fuel used to power the economy. Energy is harvested from nonrenewable resources such as fossil fuels (natural gas, coal, oil) or renewable resources such as solar, wind, or geothermal heat.

Entrepreneurs- Individuals who are willing to take risks in order to develop new products and start new business. They recognize opportunities, enjoy working for themselves, and accept challenges.

Entrepreneurship- A characteristic of people who assume the risk of organizing productive resources to produce goods and services.

Equilibrium price- The price at which quantity supplied and quantity demanded are equal. The point at which the supply and demand curves intersect.

Equilibrium wage- The wage at which the quantity of labor supplied and quantity of labor demanded are equal.

Excess reserves- Amount of funds held by a depository institution in its account at a Federal Reserve Bank in excess of its required reserve balance and its contractual clearing balance.

Exchange- Trading goods and services with people for other goods and services or for money.

Exchange rate- The price of one country’s currency in terms of another country’s currency.

Exchange Stabilization Fund (ESF)- A U.S. Treasury Department fund that typically holds three types of assets: U.S. dollars, foreign currencies, and special drawing rights (SDRs). The ESF can be used to purchase or sell foreign currencies, to hold U.S. foreign exchange and SDR assets, and to provide financing to foreign governments. All operations of the ESF require the explicit authorization of the Secretary of the Treasury.

Excludability- The property of a good or service whereby the seller can keep nonbuyers from obtaining the good or service.

Exempt (from withholding)- Free from withholding of federal income tax. A person must meet certain income, tax liability, and dependency criteria. This does not exempt a person from other kinds of tax withholding, such as the Social Security tax.

Exemption- Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions: personal and dependency. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year.

Expansion- A period when real GDP increases; a period of economic growth.

Expansionary monetary policy- Actions taken by the Federal Reserve to increase the growth of the money supply and the amount of credit available.

Expected rate of return- The amount you anticipate receiving on an investment based on the probable rates of return (often based on how the asset performed in the past).

Expenditures- Money spent to buy goods and services.

Expenses- The costs people incur for goods and services. Expenses are often categorized as fixed, variable, and periodic. Fixed expenses are those that occur each month in a regular amount, such as rent, car payments, and mortgage payments. Variable expenses are those that change from one time period to the next, such as food, clothing, gasoline, and entertainment. Periodic expenses are those that occur several times a year, such as car insurance and life insurance payments.

Explicit cost- A cost that involves actually laying out money. A direct expense that a business incurs, such as rent, salaries, wages, or utility bills.

Exports- Goods or services that are produced domestically but sold abroad.


Factors of production- The natural, human, and capital resources that are available to make goods and services. Also known as productive resources.

Fannie Mae- Fannie Mae is a government-sponsored enterprise (GSE) established as a federal agency in 1938 and chartered by Congress as a private company in 1968. Fannie Mae’s chartered mission is to provide liquidity and stability to the U.S. housing and mortgage markets by operating in the U.S. secondary mortgage market. The full legal name for Fannie Mae is the Federal National Mortgage Association.

FDIC loss-sharing arrangement- Loss sharing is a feature that the Federal Deposit Insurance Corporation (FDIC) first introduced into selected purchase and assumption (P&A) transactions used to resolve failed insured depository institutions in 1991. The original goals of loss sharing were to (1) sell as many assets as possible to the acquiring bank and (2) have the nonperforming assets managed and collected by the acquiring bank in a manner that aligned the interests and incentives of the acquiring bank and the FDIC. Under loss sharing, the FDIC agrees to absorb a significant portion of the loss–typically 80 percent–on a specified pool of assets while offering even greater loss protection in the event of financial catastrophe; the acquiring bank is liable for the remaining portion of the loss.

Federal Deposit Insurance Corp. (FDIC)- A U.S. government agency that insures deposits in banks and thrift institutions and supervises state-chartered, non-Federal Reserve member banks.

Federal funds rate- The interest rate at which a depository institution lends funds that are immediately available to another depository institution overnight.

Federal Home Loan Banks- A system of 12 regional banks with a primary mission to meet credit and financial service needs of local communities. Chartered by Congress in 1932 to promote a healthy mortgage finance system. Home loan banks are privately owned, wholesale banks without publicly traded stock.

Federal Housing Administration (FHA)- An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.

Federal Housing Finance Agency- An independent regulatory agency of the executive branch of the U.S. government that regulates the 12 Federal Home Loan Banks, Fannie Mae, and Freddie Mac.

Federal income tax- The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt.

Federal Insurance Contributions Act (FICA) tax- A tax or required contribution that most workers and employers pay. FICA is a payroll tax used to fund Social Security and Medicare.

Federal Open Market Committee (FOMC)- A Committee created by law that consists of the seven members of the Board of Governors; the president of the Federal Reserve Bank of New York; and, on a rotating basis, the presidents of four other Reserve Banks. Nonvoting Reserve Bank presidents also participate in Committee deliberations and discussion.

Federal Reserve Act- The 1913 act of Congress establishing the Federal Reserve System.

Federal Reserve Bank- One of 12 regional Banks providing services to commercial banks, serving as fiscal agents for the U.S. government, and conducting economic research on its region and the nation.

Federal Reserve Districts- Twelve regions in the United States that are represented by a reserve bank.

Federal Reserve limited liability companies- Companies (Maiden Lane) formed by the Federal Reserve Bank of New York under the authority of Section 13(3) of the Federal Reserve Act to acquire certain assets of Bear Stearns, AIG and AIG subsidiaries and to manage those assets to minimize disruption to financial markets.

Federal Reserve System- The central bank system of the United States.

Federal student loan- A loan provided by the government to postsecondary students and their parents to assist in paying for education.

Federal Trade Commission- An independent agency of the United States federal government that maintains fair and free competition, enforces federal antitrust laws, and educates the public about identity theft.

Fees- Money charged to review your application for credit or to service your credit account, such as maintenance fees or late fees. Banks often charge fees for servicing bank accounts, including overdraft fees and charges for using a non-bank ATM.

Fiat money- A substance or device used as money, having no intrinsic value (no value of its own), or representational value (not representing anything of value, such as gold).

FICO credit score- The most widely used credit score. FICO stands for Fair Isaac Corp., the company that developed this system of credit evaluation. FICO scores vary but generally range between 500 and 850. The higher the score, the more likely a borrower is to repay loans/debts.

File a return- To mail or transmit a taxpayer’s information in specified format about income and tax liability. The return can be filed on paper, electronically, or by telephone to an IRS service center.

Financial asset- A contract that states the conditions under which one party (a person or institution) promises to pay another party cash at some point in the future.

Financial crisis- An event characterized by a sudden, widespread demand for safe liquid assets that prevents the financial system, including banks and other financial institutions, from operating normally.

Financial investment- Placing money in a savings account or in any number of financial assets, such as stocks, bonds, or mutual funds, with the intention of making a financial gain.

Financial literacy- Having knowledge of financial matters and applying that knowledge to one’s life.

Fiscal agent- A person or organization serving as another’s financial representative.

Fiscal policy- Spending and taxing policies of the federal government to influence the economy.

Fixed-rate mortgage (FRM)- A mortgage loan in which the interest rate does not change during the entire term.

Flat tax- A tax system in which all levels of income are taxed at the same rate.

Flexible exchange rate- A system in which supply and demand determine exchange rates.

Food stamps- The Supplemental Nutrition Assistance Program (SNAP) allowing low-income individuals to buy nutritious food and health-care products.

Forbearance- The temporary suspension or reduction of monthly loan payments, usually up to one year.

Foreclose- To take possession of a mortgaged property as a result of the borrower’s failure to make mortgage payments.

Foreclosure- The legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure can occur when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

Foreign exchange market- A market in which one country’s currency can be used to purchase another country’s currency.

Fractional reserve banking system- A banking system in which the amount of reserves that banks hold is less than the value of their customers’ deposits.

Fraud- Intentional and deliberate misrepresentation of information in violation of laws and regulations.

Freddie Mac- Freddie Mac is a government-sponsored enterprise (GSE) chartered by Congress in 1970 to provide liquidity, stability, and affordability to the housing market. Like Fannie Mae, Freddie Mac operates in the secondary mortgage market. The full legal name for Freddie Mac is the Federal Home Loan Mortgage Corporation.

Frequency- The intervals between occurrences. In macroeconomics, it is common for data to be released monthly, quarterly, semiannually, or annually.

Frictional unemployment- Unemployment that results when people are new to the job market (for example, recent graduates) or are transitioning from one job to another.

Full employment- The lowest possible unemployment rate in a growing economy with all factors of production used as efficiently as possible.

Full-time employment- Although defined by the U.S. Bureau of Labor Statistics as employment of 35 hours or more in a week, the matter of “full-time employment” is generally determined by the employer.

Functions of money- Activities that can be carried out through the use of money. Activities include medium of exchange, unit of account, and store of value.

Future value- The value of an asset or cash at a specified date in the future that is equal in value to a specified sum today.

Future value equation – FV=PV (1+i)n, where:

FV = Future value is the amount that’s not known but will be solved in the calculation. It’s the amount wanted in the future.

PV = Present value, which is money currently held or the amount of money that will be earning interest.

i = Interest rate, which has a great effect on future value. The interest rate in this formula must be written in decimal form, such as 0.03 instead of 3%.

n = This is the number of periods (such as years) money is saved and interest is applied. If money were to be saved for 3, 5, 7 or 10 years, then 3, 5,7, or 10 would be “n” in the calculation.