Key Terms

business cycle

a period of economic expansion followed by economic contraction

ceteris paribus

holding all other things constant

consumer price index (CPI)

a measure of inflation based on the cost of a market basket of goods that a typical urban family of four might purchase

core inflation index

a measure of inflation that removes food and energy prices from the CPI

demand

the quantity of a good or service that consumers are willing and able to purchase during a given time period, ceteris paribus

economic exposure

the risk that a change in exchange rates will impact a business’s sales and number of customers

equilibrium

the point at which the demand and supply curves for a good or service intersect

equilibrium price

the price at which quantity demanded equals quantity supplied

expansion

the part of the business cycle in which GDP is growing

GDP deflator

a measure of inflation tracked by the Bureau of Economic Analysis, intended to measure what GDP would be if prices did not change from one year to the next

gross domestic product (GDP)

the market value of all goods and services produced within an economy during a year

inflation

a general increase in prices

law of demand

the principle that the quantity of purchases varies inversely with price; the higher the price, the lower the quantity

macroeconomics

the study of the economy as a whole, focusing on unemployment, inflation, and total output

microeconomics

the study of the economy at the individual level, focusing on how individuals and businesses choose to allocate scarce resources

nominal interest rate

the quoted or stated interest rate

producer price index (PPI)

a measure of the prices that producers of goods and services pay for their supplies and raw materials

real interest rate

the nominal interest rate minus the rate of inflation

recession

the part of the business cycle characterized by contraction

spot exchange rate

the price to immediately buy one currency in terms of another currency

supply

the quantity of a good or service that firms are willing to sell in the market during a given time period, ceteris paribus

transaction exposure

the risk that the value of a business’s expected receipts or expenses will change as a result of a change in currency exchange rates

translation exposure

the risk that a change in exchange rates will impact the financial statements of a company

unemployed

members of the labor force who are not currently working but are actively seeking a job