Economy 101

The vocabulary of recession

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As the U.S. financial system stumbles, making headlines and creating distress in markets all over the world, economists are predicting an imminent recession. Or is that depression? How will it affect inflation? Many people find these economic terms confusing and interchangeable. Infoplease's guide to economic terms will help make sense of these esoteric terms.

• adjustable rate mortgage
• bear market: an extended period of general price declines in the securities market
• bond: a long-term promissory note that obligates the borrower to make specified payments over a specific period of time. Bonds vary widely in maturity, security and type of issuer, although most are sold in $1,000 denominations.
• bull market: an extended period of general price increases in the securities market.
• business cycle
• capital gain: The excess by which proceeds from the sale of a capital asset exceeds the cost.
• Consumer Price Index (CPI): a measure of the average change over time in the prices paid by urban consumers for a fixed "market basket" of day-to-day expenses (including food, automobile registration, clothing, etc.)
• correction: reverse movement in the price of an individual stock, bond, commodity or index after any long-term move. Can be a movement up or down, but usually refers to a fall in the price.
• credit rating: A grading of a borrower's ability to meet financial obligations in a timely manner.
• default risk: Risk that a particular debtor will fail to make timely payments of interest and principal. Interest rates on a debt instrument rise as the default risk increases.
• depression
• federal funds rate: The rate of interest, determined by the Federal Reserve, on overnight loans of excess reserves among commercial banks. A declining federal fund rate may indicate the Federal Reserve has decided to stimulate the economy by making it cheaper for one bank to borrow from another.
• Federal Reserve
• hedge fund: A very specialized, volative investment company (mutual fund) that permits the manager to use a variety of investment techniques normally prohibited in other types of funds. These techniques are borrowing money, selling short and utilizing options. These funds offer extraordinary gains with above-average risk.
• gross national product
• inflation
• interest rate: A measure of the cost of credit, expressed as a percent.
• Keynesian economics: The economic philosophy espoused by John Maynard Keynes that advocated an active government role in maintaining the economy.
• misery index: an index that considers both inflation and unemployment rates.
• panic
• recession: an economic downturn marked by two consecutive quarters of declines in the gross national product.
• stagflation
• standard of living
• subprime loans: Loans that are given to borrowers who have credit problems. Subprime loans typically have higher interest rates than those given to borrowers with a clear credit history.
• supply and demand
• supply-side economics
• unemployment