Economic Terms

Economics can be an intimidating subject, but by understanding the fundamental definitions of economic terms, you can start to get a sense of why economic changes happen, what drives an economy, and how they affect your daily life.

Simple Explanations of Everyday Economics Terms

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What Is the Average Income in the United States?
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Interest Rates and How They Work
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What Is the Federal Reserve?
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What Is Middle-Class Income?

Frequently Asked Questions

• What is supply and demand?
  Supply and demand are the forces that drive the U.S. economy. Supply includes labor (represented by employment) and natural resources such as oil, land, and water. Oil prices drive more than 50% of the cost of gas. Demand, or personal consumption, drives almost 70% of the economy. A lot of this occurs during the holiday shopping season, which starts on Black Friday.

Learn More: The US Economy and How It Works

• How does trickle-down economics work?
  Trickle-down economics assumes investors, savers, and company owners are the real drivers of growth. It promises they’ll use any extra cash from tax cuts to expand businesses. Investors will buy more companies or stocks. Banks will increase lending. Owners will invest in their operations and hire workers. All of this expansion will trickle down to workers.

Learn More: Why Trickle-Down Economics Works in Theory but Not in Fact

• What is economic growth?
  Economic growth is the increase in the value of an economy's goods and services, which creates more profit for businesses. As a result, stock prices rise. That gives companies capital to invest and hire more employees.

Learn More: What Is Economic Growth?

• What is middle-class income?
  Although the U.S. government doesn't have an official definition of middle-class income, the Pew Research Center considers a household income to be "middle class" if it's between 67% and 200% of the median household income.

Learn More: What Is Middle-Class Income?

• What is an economic depression?
  An economic depression is a severe downturn that lasts several years. As of this writing, the world has only experienced one economic depression. That was the Great Depression, which lasted 10 years. The decline in the gross domestic product growth rate was bigger than anything experienced since then.

Learn More: Economic Depression, Its Causes, and How To Prevent It