Key Definitions

Do you get lost in the financial terms that are being thrown around lately? Use this handy reference guide to understand what all the talking heads are saying!

Capitalism: An economic system in which property is privately owned, and profit provides incentive for capital investment and the employment of labor.

Compound Interest: Interest which is calculated not only on the initial principal but also on the accumulated interest of prior periods.

Deficit Spending: The amount by which a government, company, or individual's spending exceeds its income over a particular period of time.

Depression: A recession that lasts longer than average, has a larger decline in business activity, and a higher rate of unemployment.

The Great Depression: The economic crisis beginning with the stock market crash in 1929 and continuing through the 1930s.

Dow: The Dow Jones Industrial Average - A measurement of market price movement for 30 widely held stocks listed on the New York Stock Exchange.

Fed: The Federal Reserve System - The nation's central bank with seven regional branches, which controls the money supply. Created by Congress in 1913.

Free Enterprise: Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy; also called free market.

Full Employment: All eligible people who want to work can find employment at prevailing wage rates. Does not imply 100% employment because allowances must be made for frictional unemployment (people changing jobs, careers or locations) and seasonal factors.

Recession: Technically a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters; it ends when business activity bottoms out and an expansionary period begins. Generally lasts at least one year.

S & P 500: An index consisting of 500 stocks chosen by Standard & Poor’s for market size, liquidity and industry grouping, among other factors. A leading indicator of risk/return characteristics of U.S. equities.

Socialism: An economic system in which government exerts control over the nation's wealth and property and provides services in the pursuit of social justice.