Economics and Personal Finance Glossary (Q-S)


Q

Qualified distribution- A reason you may withdraw money from a Roth IRA without the withdrawal being subject to tax.

Quantitative easing (QE)- A monetary policy in which a central bank makes large-scale asset purchases designed to bolster financial market conditions.

Quantity demanded- The amount of a good or service that consumers are willing and able to buy at a specific price.

Quantity supplied- The amount of a good or service that businesses are willing and able to sell at a specific price.

Quantity theory of money- A theory that emphasizes the relationship between the money supply and the price level.

Quartile- One part of a dataset that has been divided into four equal parts.

R

Rate of return- A useful measure to compare how different assets may increase your wealth.

Real- Monetary values, wages, or prices, adjusted for inflation and measured in constant prices—that is, in prices of a given or base period. Real monetary values are obtained by adjusting nominal wages or prices with a price measure such as the CPI.

Real asset- A tangible item that has intrinsic value due to its substance and properties.

Real gross domestic product (GDP)- The total market value of all final goods and services produced in an economy in a given year calculated by using a base year’s price for goods and services; nominal gross domestic product (GDP) adjusted for inflation.

Real interest rate- The price of borrowed money, adjusted for inflation.

Real rate of return- The rate of return on the investment minus the inflation rate.

Real value- A measure of money that removes the effect of inflation.

Recession- A period of declining real income and rising unemployment; significant decline in general economic activity extending over a period of time.

Reciprocal currency (swap) arrangements- Short-term reciprocal arrangements between a Federal Reserve Bank and a foreign central bank. By drawing on a swap the foreign central bank obtains dollars that can be used to conduct foreign exchange intervention in support of its currency or to lend to its domestic banking system to satisfy temporary liquidity demands. For the duration of the swap, the Federal Reserve Bank obtains an equivalent amount of foreign currency along with a commitment from the foreign central bank to repurchase the foreign currency at a preset exchange rate.

Regressive Tax- A taxing system that takes a larger percentage of a lower income and a lower percentage of a higher income.

Relative price- The cost of a good or service in terms of another good or service.

Relative scarcity- Demand for a resource, good, or service relative to the available supply of that resource, good, or service.

Relatively scarce- An item that is scarce in relation to people’s desire for it.

Reloadable card- A prepaid card that allows the cardholder to add more funds (money) to the card.

Rent- The payment for natural resources.

Rent-to-own contract- A contract that allows consumers to get immediate delivery on new furniture, appliances, or other items. There is no down payment or credit check required. If the consumer keeps the rental item for a minimum amount of time, there is no penalty charged for returning it. If the renter misses a payment, the contract requires that he or she return the item.

Repossess- To retake possession of something when the buyer fails to make payments.

Required reserves- Funds that a depository institution is required to maintain in the form of vault cash, or—if vault cash is insufficient to meet the requirement—in the form of a balance maintained directly with a Reserve Bank or indirectly with a pass-through correspondent bank.

Reserve maintenance period- The period of time that reserve balance requirements and contractual clearing balances need to be met (only on average).

Reserve requirement- The percentage of a bank’s deposits it is required by law to hold.

Reserves (bank)- The sum of cash that banks hold in their vaults and the deposits they maintain with Federal Reserve banks.

Residential mortgage-backed security (RMBS)- A security that relies for payment on cash flows generated by a pool of residential mortgage debt obligations. (See also: Asset-backed security and Commercial mortgage-backed security.)

Retail- The resale of new and used goods to general consumers.

Retained earnings- A portion of a company’s profit used as savings, to pay off debt, or to reinvest in the company.

Retirement- Permanently leaving a job, career, occupation, or active working life.

Return on Investment (ROI)- A performance measure of the effectiveness of an investment. ROI is calculated as the net gain (gain from investment minus cost of investment) divided by the cost of investment.

Revenue- Money received; income.

Revenue (government)- The income received by government from taxes and other nontax sources.

Rewards- Positive incentives that make people better off.

Risk- The chance of loss.

Risk averse- An investor who will trade off a higher return for the benefit of greater certainty of return.

Risk-reward relationship- The idea that there is a direct relationship between risk of the loss of principal and the expected rate of return. The higher the risk of loss of principal for an investment, the greater the potential reward. Conversely, the lower the risk of loss of principal for an investment, the lower the potential reward.

Rivalry (in consumption)- The property of a good or service whereby consumption by one party excludes other parties from obtaining the benefit.

Rule of 72- A method to estimate the number of years it will take for a financial investment (or debt) to double its value (or cost). Divide 72 by the interest rate (percentage) to determine the approximate number of years it will take the investment (debt) to double its value (cost).

Rule of law- Concept that holds that government and its officers must exercise their power according to established regulations and legal principles.

S

Salary- Income earned for providing human resources (labor) in the market. Salaries are generally an annual amount paid monthly or bimonthly for a specified number of hours, usually 40 hours per week.

Save- To keep money to spend in the future.

Saving- Income mot spent on current consumption or taxes. Saving involves giving up some current consumption for future consumption.

Saving (elementary)- Keeping some income to buy things in the future.

Saving rate- The percentage of your income that you save.

Savings- The accumulation of money set aside for future spending.

Savings account- An account with a bank or credit union in which people can deposit their money for future use and earn interest.

Savings and loan associations- Financial institutions with a federal or state charter that accept savings deposits and invest the bulk of those deposits in mortgages.

Savings goal- A good or service that you want to buy in the future.

Savings plan- A schedule listing tasks that, when completed, will allow a saver to reach a savings goal.

Scarcity- The condition that exists because there are not enough resources to produce everyone’s wants.

Search costs- The financial opportunity costs consumers pay when searching for a counterparty in a transaction.

Seasonal unemployment- Unemployment caused by changes in the weather or seasons.

Seasonally adjusted- Data adjusted mathematically to remove the ups and downs that occur due to seasonal events, such as extra retail workers hired for the holidays. Seasonal adjustment removes the effects of events that follow a more or less regular pattern each year. These adjustments make it easier to observe the cyclical and other nonseasonal movements in a data series.

Second mortgage- A mortgage that has a lien position subordinate to the first mortgage.

Secondary market- The market in which investors buy and sell securities among each other.

Secured loan- A loan that is backed with collateral; a loan for which the lender requires and the borrower offers property as a guarantee of repayment.

Securities and Exchange Commission (SEC)- The SEC is an independent U.S. government agency established by Congress to police and regulate the securities industry.

Securitization- A financial transaction in which assets such as mortgage loans are pooled and securities representing interests in the pool are issued.

Self-interest- The pursuit of personal gain.

Senior debt- If the issuer of a debt security goes bankrupt, senior debt must be repaid before other creditors receive any payment. Senior debt is often secured by collateral on which the lender has a first lien.

Senior secured debt- Generally, refers to borrowing by a financial or nonfinancial firm that is secured by real (physical) assets and has prior claim to incoming cash flows before other debt.

Services- Actions that can satisfy people’s wants.

Shoe-leather costs- The figurative costs of replacing shoes more often because of increased trips to the bank. This would occur during times of inflation when there is a real cost associated with holding currency in non-interest-bearing checking accounts.

Short selling- The selling of a stock or other security not owned by the seller. In effect, the seller is betting that the price of the security will fall. A “naked” short sale is an unhedged position.

Shortage- When the quantity demanded of a good or service exceeds the quantity supplied at a particular price.

Short-run aggregate supply curve- A graphical depiction of the relationship between the aggregate price level and the quantity of aggregate output supplied.

Short-term savings goal- Goods or services to be bought within a short time, such as a few weeks or months.

Signal- A way to reveal credible information to another party.

Simple interest- An annual payment based on a percentage of the amount you save.

Sit-in- A type of protest where people refuse to buy the business’s goods and services and block others from making purchases by taking all of the seats in a restaurant or blocking the entrance to a business.

Skill premium- The difference between the average earnings of those with a four-year college degree and those without.

Skimming- An illegal method of stealing credit card information by using a small electronic device that scans and stores credit card data. The stolen credit card information can be used to make fraudulent purchases or clone new cards.

Smart Pay Program- The world’s largest government charge card and commercial payment program that allows authorized government employees to make purchases on behalf of the U.S. government.

Social Security- A federal system of old-age, survivors’, disability, and hospital care insurance that requires employers to withhold (or transfer) wages from employees’ paychecks and deposit that money in designated accounts.

Social Security income- The monthly monetary amount received by retired workers who paid into the Social Security system while they worked.

Social Security tax- A payroll tax that is part of FICA (Federal Insurance Contributions Act) and is collected from most employees and employers to fund Social Security, which provides old-age, survivors’, and disability income.

Socially optimal quantity- The quantity of goods produced that takes private and social costs into account.

Soft inquiry- Any check of a person’s credit report that occurs when the person’s credit is not being reviewed by a prospective lender. Examples include inquiries as part of a background check, a person checking his or her own score, and checks by a financial institution with which a person already does business.

Special purpose districts- Government entities existing to support a special function, such as fire protection, libraries, or mass transit.

Special purpose vehicle (SPV)- A legal entity (usually a limited liability company) created to fulfill narrow or temporary objectives. The SPV exists to hold the assets and issue a new set of claims on the assets, making the SPV sponsor remote from any bankruptcy associated with the pool of assets. The SPV typically holds a portfolio of various assets such as mortgages, loans, or corporate bonds. This portfolio is sliced into different components (called tranches).

Specialization- Limiting production to fewer goods and services than consumed, perhaps those whose production entails the lower opportunity cost.

Spending- Using some or all of your income to buy things you want now.

Stagflation- The condition of relatively high inflation and relatively high unemployment occurring simultaneously.

Standard of living- A measure of the goods and services available to each person in a country; a measure of economic well-being. Also known as per capita real GDP (gross domestic product).

Stigma- A stain on one’s reputation; a mark or token of disgrace.

Stimulus packages- Combinations of tax cuts, subsidies, and increases in government spending.

Stock- A share of ownership in a company. Stocks are often traded publicly.

Stock exchange- A market in which stocks are bought and sold.

Stock market index- A collection of stocks chosen to represent a particular part of the market.

Stock mutual fund- A mutual fund that buys stock in order to make profits for the investors.

Store of value- The ability to retain worth.

Stress test- An assessment of capital adequacy conducted by U.S. federal bank and thrift supervisors. The purpose of the stress test (formally, a capital assessment) is to determine if the largest U.S. banking organizations have sufficient capital buffers to withstand the impact of an economic environment that is more challenging than is currently anticipated.

Structural unemployment- Long-term joblessness caused by a mismatch in the skills held by those looking for work and the skills demanded by those seeking workers.

Structured investment vehicle (SIV)- A special purpose entity that invests in a variety of financial assets and is funded by short- or medium-term borrowings–for example, asset-backed commercial paper (ABCP).

Student loan default- A student loan with no likelihood of being repaid.

Subordinate financing- Any mortgage or other lien with lower priority than the first mortgage.

Subprime mortgage loan- The classification “subprime” generally is a lender-given designation for loans extended to borrowers with some sort of credit impairment, say, due to missing installment payments on debt or the lack of a credit history. Along with an individual’s credit rating, characteristics of the mortgage loan can contribute to a lender classifying a loan as subprime–features such as limited or no documentation about income or assets, high loan-to-value ratios, or high payment-to-income ratios.

Subsidized loan- A loan in which the government pays the interest on the loan for a specific time.

Subsidy- A payment made by the government to support a business or market. No good or service is provided in return for the payment.

Substitute- A similar good. With substitutes, a change in the price of one and the demand for the other tend to move in the same direction.

Substitute (resource)- Productive inputs that can be used in place of one another.

Supply- The quantity of a good or service that producers are willing and able to sell at all possible prices during a certain time period.

Surplus- When the quantity supplied of a good or service exceeds the quantity demanded at a particular price.

Systemic risk- Risk that a disruption at a firm, in a market segment, to a settlement system, or in a similar setting will cause widespread difficulties at other firms, in other market segments, or in the financial system as a whole.