Economics and Personal Finance Terms (N-P)

Economics and Personal Finance Glossary (N-P)


NASDAQ- The National Association of Securities Dealers Automated Quotations system—a stock exchange where trades are made electronically.

National debt- The accumulation of budget deficits. Also known as government debt.

Natural rate of unemployment- The unemployment rate that stems from economic factors unrelated to changes in aggregate demand. The rate of unemployment that does not contain cyclical unemployment.

Natural resources- Things that occur naturally in and on the earth that are used to produce goods and services.

Negative amortization- An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.

Negative equity- A situation in which a borrower’s mortgage principal is greater than the value of the house.

Negative externality- A negative side effect that results when the production or consumption of a good or service affects the welfare of people who are not the parties directly involved in a market exchange.

Nest egg- An amount of money saved for a special occasion, such as retirement or buying a house.

Net exports- A component of gross domestic product (GDP), net exports are the result of U.S. exports minus U.S. imports.

Net pay- Gross pay minus deductions and taxes.

Net worth- The value of that person’s assets minus the value of his or her liabilities.

Nominal- Monetary values measured in current prices.

Nominal gross domestic product- The total market value of all final goods and services produced in an economy in a given year, expressed using the current year’s price for goods and services. Also known as current-dollar GDP.

Nonexcludability- The inability to keep nonpayers (free riders) from obtaining benefits from a certain good or service.

Non-interest-bearing account- An account in which no interest is paid on the principal, which is the amount of deposit or account balance. Also called zero-interest account.

Non-liquid asset- An asset that is not easily convertible into cash with relatively little loss of value in the conversion process.

Nonprofit school- Any public school, including public colleges and schools not a part of the public school system, that operates with no intention of making a profit.

Non-recourse loans- A loan (debt) that is secured by a pledge of collateral (could apply to any type of collateral), for which the lender agrees to rely solely on the collateral if the borrower fails to make the required payments of principal and interest.

Nonrivalry (in consumption)- The property of a good or service whereby one person’s benefit from a certain good or service does not reduce the benefit available to others.

Northern Rock- A U.K. bank that was taken into temporary public ownership in February 2008. The bank concentrated primarily on mortgage lending to individuals for the purpose of home ownership.


Office of Management and Budget- The implementation and enforcement arm of presidential policy government-wide that carries out its mission through five critical processes, most notably budget development and execution.

Office of the Comptroller of the Currency (OCC)- A bureau of the U.S. Department of the Treasury, the OCC charters, regulates, and supervises all national banks. It also supervises the federal branches and agencies of foreign banks.

Office of Thrift Supervision (OTS)- The federal regulator and supervisor of savings associations (“thrifts”) and their subsidiaries. The OTS also oversees domestic and international activities of the holding companies and affiliates that own these savings institutions. The OTS is an office within the Department of the Treasury.

Open market operations- The buying and selling of government securities through primary dealers by the Federal Reserve in order to influence the money supply.

Opportunity cost- The value of the next-best alternative when a decision is made; it’s what is given up.

Option ARM (pay-option ARM)- An adjustable-rate mortgage (ARM) that gives the borrower a set of choices of how much interest and principal to pay each month. This may result in negative amortization. The option period is typically limited, for example, to five years.

Originate-to-distribute model- A business model where lenders intend to securitize or sell loans that they originate. In contrast to portfolio lending, under this model, lender income is generated by fees paid by the buyers of the loans, rather than from payments made by borrowers.

Output gap- The difference between potential output and actual output.

Output potential- Points along the production possibilities frontier.

Outputs- Goods and services that are produced.

Overdraft- The result of an account holder authorizing a withdrawal through a check, ATM withdrawal, debit card purchase, or electronic payment when the account does not have enough money to cover the transaction.

Overdraft fee- The penalty associated with an overdraft.

Overdraft service- Provided by financial institutions to generally approve and pay overdraft transactions when the account holder does not have enough funds to cover the transactions in return for a fee.


Paradox of thrift- A controversial Keynesian economics theory that proposes that if everyone tries to save more during a recession, aggregate demand will fall. As a result, the theory argues everyone would grow poorer instead of richer due to the decreases in aggregate consumption and economic growth.

Patent- A license that gives the inventor of a new product the exclusive right to sell it for a specific period of time.

Payday loan- A small, short-term loan that is intended to cover a borrower’s expenses until his or her next payday. May also be called a paycheck advance or a payday advance.

Payroll deduction- Amounts subtracted from gross pay.

Penalties- Negative incentives that make people worse off.

Per capita- Per person. Determined by dividing the total quantity by the total population.

Per capita gross domestic product- Gross domestic product (GDP) divided by the total population of a country.

Per capita personal income- The total income earned by individuals in a state, region, or country during a year, divided by the population of the state, region, or country.

Perfect competition- A market in which there are many buyers and many sellers of an identical product.

Permanent insurance- A policy that does not expire until death, or age 100.

Personal identification number (PIN)- A required code known only by the cardholder that is used to make transactions; the PIN is entered into a terminal and sent to an authorizing entity to verify the account.

Personal income- The income that individuals receive from all sources, including wages and salaries, dividends and interest, rents, profits, and transfer payments.

Personal saving rate- The ratio of personal saving to disposable personal income; the fraction of income, after taxes, that is saved.

Phillips Curve- An economic model indicating an inverse relationship between the rate of inflation and the rate of unemployment.

Phishing- When someone attempts to get your personal information by pretending to work for a legitimate or legitimate-sounding organization, such as a bank or the government.

Physical capital- Goods that have been produced and are used to produce other goods and services. They are used over and over again in the production process. Also called capital goods and capital resources.

Pigovian tax- A tax used to correct for a negative externality.

Point-of-sale (POS) terminal- An electronic device for the acceptance of payment cards; POS refers to the area or location where customers can pay for their purchases.

Policy lags- The time between the recognition of an economic problem, the negotiation and implementation of a solution, and the realization of results in the economy.

Portable- Easy to carry.


A list or collection of financial assets that an individual or company holds.

Potential output

The real output (GDP) an economy can produce when it fully employs its available resources.

Poverty threshold

The dollar amount the U.S. Census Bureau uses to determine a family’s or person’s poverty status.


An indication of our likes or dislikes; preferences help us make choices.

Preferred stock (equity)

Equity (ownership) shares in a firm that have a senior claim over common shareholders on the assets of a firm in the event of bankruptcy. A firm must pay preferred dividends on these shares, according to a contractually specified schedule at a rate that is either fixed or floating, before it can pay dividends to common shareholders.

Premium- The fee paid for insurance protection.

Present bias- Choosing what makes one happy in the moment.

Present value- Present value is the current value of a future sum of money, given a specified rate of return.

Present value equation- V=FV [1/(1+i)n], where:

PV = Present value, the amount that’s not known but will be solved in the calculations. It’s the amount needed today to achieve a determined future goal.

FV = Future value, the amount of money wanted in the future. It is the amount that will be reduced at a determined interest rate to calculate the present value.

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

n = The number of interest payments during a specified time; the number of times interest is applied.

Price- The amount of money, determined by the interaction of buyers and sellers, that a buyer must pay to acquire a good, service, or resource.

Price ceiling- A government-mandated maximum price that can be charged for a good or service.

Price discrimination- The practice of selling the same good or service at different prices to different customers.

Price floor- A government-mandated minimum price that must be paid for a good or service.

Price stability- A low and stable rate of inflation maintained over an extended period of time.

Primary credit rate- The interest rate charged by the Federal Reserve for primary credit loans to depository institutions. Because primary credit is the Federal Reserve’s main discount window program, the Federal Reserve at times uses the term “discount rate” to mean the primary credit rate. Discount rates are established by each Reserve Bank’s board of directors, subject to the review and determination of the Board of Governors.

Primary Dealer Credit Facility (PDCF)- An overnight Federal Reserve loan facility that provides funding to primary dealers in exchange for any eligible collateral.

Primary dealers- Banks and securities broker-dealers that trade in U.S. government securities with the Federal Reserve Bank of New York.

Primary market- The market in which new stocks and bonds, in the form of initial public offers (IPOs), are issued.

Principal- The original amount of money deposited or invested, excluding any interest or dividends. Also refers to the original amount of a loan without any interest.

Private (or nonpublic) school- A school owned and operated by an individual; religious institution; partnership; or a corporation other than the state, a subdivision of the state, or the federal government and that is supported primarily with nonpublic funds.

Private good- A good that once used by one person cannot be used by someone else. They are considered rival in consumption and/or excludable. A person can be excluded from using a private good.

Private, for-profit college

A college managed and governed by private organizations or corporations with the goal of earning profit.

Private-label prepaid card- A merchant-specific card that can be used only at a particular merchant or chain of merchants (e.g., Sears or JC Penney); a card issued by and used for purchases at a retailer. Private-label cards cannot be used on a general-purpose card network.

Private-label securities- In the housing-finance business, a mortgage-backed security or other bond created and sold by a company other than a government-sponsored enterprise. Private-label securities frequently are collateralized by loans that are ineligible for purchase by Fannie Mae or Freddie Mac.

Probability- The likelihood or chance of an event occurring.

Producers- People who make goods and services.

Production function- The combination of inputs to produce outputs.

Production possibilities frontier- A graphic representation of output combinations that can be produced given an economy’s available resources and technology.

Productive capacity- The maximum output an economy can produce with the current level of available resources.

Productive resources- The natural, human, and capital resources used to make goods and services. Also known as factors of production.

Productivity- The ratio of output per worker per unit of time.

Profit- The amount of revenue that remains after a business pays the costs of producing a good or service.

Progressive Tax- A tax in which high-income earners pay a larger fraction of their income in taxes than low-income earners do.

Proportional (Flat) Tax- A taxing system that takes the same percentage of tax at all income levels.

Public good- A good that is non-rival and non-excludable. Use by one person does not prevent its consumption by others.

Public school- A school that receives monetary support from public funds.

Purchasing power- The amount of goods and services that a unit of currency can buy.