“Economics” is often called the Dismal Science – it studies the trade-offs between making choices. The purpose of economics is to look at the different incentives, assets, and choices facing people, businesses, schools, and governments, and see if there is any way to improve outcomes.
Economic Incentives includes anything that pushes people, businesses, and governments to do one thing or another. This includes what products you buy, what career you choose, what products businesses produce, and what government programs are put in place.
Economic Growth means that the economy is growing. More goods and services are being produced and consumed than they were before. The most common measurement of economic growth is the Gross Domestic Product (or GDP), which measures the total number of finished goods and services produced in an economy in a year.
“Competition” is when many producers try to sell similar goods to the same set of consumers. The producers need to “compete” to try to attract more consumers, usually by lowering prices, offering better versions of the goods or services, or through marketing.
The Federal Reserve Bank, or the “Fed”, is the central banking system of the United States. It serves as the primary regulator of the US dollar, as well as the “lender of last resort” for other banks.
“Price Controls” are artificial limits that are put on prices. If the limit is put in place to prevent prices from getting too high, they are called Ceilings. If they are in place to prevent the price from getting too low, they are called “Floors”.
The Business Cycle is the broad, over-stretching cycle of expansion and recession in an economy.
The accounting cycle is a series of steps that businesses take to track transactions and consolidate financial information over a specific accounting period (month, quarter, year). The end result of the accounting cycle is the production of accurate financial statements for that period and preparedness for the next accounting period.
Personal selling is when businesses use people to “sell” the product to a customer face-to-face. These sales people promote the product with every aspect of themselves, including their appearance, attitude and special knowledge of the product.
The four stages included in the product life cycle are introduction, growth, maturity, and decline. This cycle is extremely important for managers to monitor in order to plan an effective strategy for their business.
A cash budget is used internally by management to estimate cash inflows (receipts) and outflows (disbursements) of cash during a period and the cash balance at the end of a period. In other words, a cash budget is a plan for an organization to obtain and use resources over a specific period of time. This means an organization must have an idea of where their money is coming from and how it should be spent.
Cash flow is a concept in accounting that refers to the spending or receiving of cash by an organization. For a given period, cash flow is calculated by ending cash balance less starting cash balance.
Operating ratios are a class of ratios that are meant to analyze how well a company is using their assets. Specifically, these ratios show how well a company utilizes its assets to create revenue.
Futures Contracts are a standardized, transferable legal agreement to make or take delivery of a specified amount of a certain commodity, currency, or an asset at the end of specified time frame. The price is determined when the agreement is made.
An option gives the owner the right, but not the obligation, to buy or sell the underlying instrument(we assume stocks here) at a specified price(strike price) on or before a specified date(exercise date) in the future. (this is different for European options as they can only be exercised at the end date). Exercising the option is using that right to to buy or sell the underlying instrument.
Spot and Futures contracts are a standardized, transferable legal agreement to make or take delivery of a specified amount of a certain commodity, currency, or an asset at the current date. The price is determined when the agreement is made.
Brokerages exist to allow individuals to make investments into the larger market. In other words, they connect individuals to the markets as a whole.
Bonds are essentially a much more formal I.O.U (I owe you) used to borrow money. You buy the bond in return to interest over a given period of time. When a corporation or government needs money they issue bonds that people buy. In turn, the issuer (the person who sells the bond) takes the money. However, no one would buy something if they didn’t get something in return, so the issuer will offer to not only pay the person back at a specified date but also provide some interest along the way.
Mutual Funds are a way you can buy into a wide range of stocks, bonds, money markets, or other securities all at once. They are professionally managed, so you are basically buying a piece of a larger portfolio.
ETFs are a fairly new way that you can buy a large group of stocks, assets, or other securities all at once. ETFs trade just like stock; you can buy and sell shares of an ETF throughout the day on an exchange.
The Dow Jones Industrial Average, more frequently known as the Dow or the Dow Jones, is a stock market index made up of 30 of the largest publicly-owned companies based in the United States. It’s a price weighted index meaning that the index’s price is an average of the price of the 30 stocks that make it up.
The New York Stock Exchange (or NYSE) is the largest stock exchange in the world. Think of it as an organized, fast-paced flea market where buyers and sellers from all over the world come to trade U.S. stocks (and now some foreign shares as well). It is where over 2,800 of the biggest U.S. companies have their shares listed.
A “Ticker Symbol” is a unique one to five letter code used by the stock exchanges to identify a company.
Stock is defined as a share of ownership in a company. If you own a company’s stock, you own a percentage of the company itself. This includes partial ownership of its assets (like equipment, vehicles, and buildings) and partial ownership if its income and profits.