Agricultural terms of trade-The prices of agricultural outputs relative to the prices of agricultural inputs. If agricultural output prices rise relative to input prices, we say that there is a positive agricultural terms of trade effect.

Balance of agricultural trade-The value of agricultural exports less the value of agricultural imports. If agricultural export value is higher than agricultural import value, there is a positive agricultural balance of trade. This concept is the counterpart of a general balance of trade specific to agriculture.

Capital flight-The movement of savings and liquid financial assets from one country to another and from one currency to another. Often during financial crises, residents of the crisis country will transfer savings and other liquid assets into U.S. dollar-denominated assets, often in the United States. This has the effect of putting pressure on the exchange rate and often leads to devaluation and the draining of liquidity out of the crisis country's banking and financial system.

Consumer income-Often, the term "consumer income" is used synonymously with a country's gross domestic product (GDP). In technical national income account terms, consumer income should more specifically refer to disposable income or household income, which would be approximately 70 percent of GDP.

Consumer price index(CPI)-A price index that measures the cost of a fixed basket of consumer goods with weights based on consumption shares of urban consumers. It is published by the Bureau of Labor Statistics (BLS) for the United States. CPIs are published regularly in the United States and many other countries around the world. There are many component indexes of the CPI, as well as international comparisons, which are available from BLS.

Country terms of trade-The relative value of a country's export prices divided by the relative value of a country's import prices, measured as an index. We say a country's terms of trade are improving if export prices are rising relative to import prices.

Depository institutions-Commercial banks, credit unions, savings and loan associations, mutual savings banks, and federal savings banks.

Exchange rate-The price that one currency converts to another. For example, on April 16, 2002, 3.8 Malaysian ringgits were equal to one U.S. dollar. In the Agricultural Exchange Rate Data Set, all exchange rates are given as foreign currency to the U.S. dollar. Nominal exchange rates are the current value of the foreign currency in terms of U.S. dollars. Real exchange rates are the nominal exchange rates adjusted for relative rates of inflation fixed to a given base year. The U.S. trade-weighted exchange rate is an index of exchange rates across countries where relative exports determine the weight of the country's exchange rate in the overall index. The sum of the weights equals one.

Fiscal policy-The government's program determining the amount of taxes and government expenditures to be made in a year. When an economy is moving into recession, an expansionary economic policy would dictate that the government should provide an economic stimulus by increasing expenditures or reducing taxes. This is referred to as a stimulative fiscal policy. During periods with low unemployment and rising inflation, constraining fiscal policy is often suggested, involving increased taxes or reduced government expenditures.

Gross domestic product (GDP)-The value of all final goods and services produced inside a country in a given time period. It equals the sum of all final goods spent for consumption, investment, government, and net export (exports minus imports). For more information, see Measuring the Economy: A Primer on GDP and the National Income and Product Accounts  from the U.S. Department of Commerce, Bureau of Economic Analysis.

Income elasticity-The percent change in quantity demanded induced by a percent change in income. If a 1-percent change in income induces a change in quantity demanded by more than 1 percent, then the demand is said to be elastic. If the response is less than 1 percent, the demand is said to be inelastic. Since elasticity is a relative measure, it is independent of scale and thus provides a useful measure of comparison across all ranges and scales of quantities.

Macroeconomics-The study of aggregate economic variables such as national income, employment, interest rates, exchange rates, and prices. Often because of aggregation, index numbers are used to represent macroeconomic variables. Examples are the unemployment rate, trade-weighted exchange rates, and the consumer price index.

Monetary policy-The set of policies determined by the Board of Governors of the Federal Reserve System involving influence over the money supply, short-term interest rates, and credit market conditions. During periods of recession, lower interest rates and higher money growth can help stimulate the economy. During periods of declining unemployment and increasing inflation, monetary restraint by raising interest rates and slowing the growth of money is usually indicated.

Purchasing power parity-A concept in which a given amount of U.S. dollars will purchase the same bundle of goods in all economies. In calculating purchasing power parity, adjustments are made to exchange rates to raise or lower the relative value of currencies to equilibrate purchasing power.

Real federal funds rate-The nominal federal funds rate minus the near-term expected rate of inflation. The federal funds rate is the rate that one depository institution charges another on borrowings of funds held at Federal Reserve Banks. The Federal Reserve targets the federal funds rate and sets the discount rate, the rate the Federal Reserve charges on Federal Reserve lending to depository institutions.

Transmission elasticity (or exchange rate pass-through)-Because markets are imperfect and there are barriers to trade, a change in international prices or exchange rates does not necessarily translate perfectly into a change in domestic prices. The transmission elasticity measures the rate of transmission and varies between 0 and 1. A transmission elasticity of 1 indicates that international price changes and exchange rate changes are perfectly transmitted to the domestic economy. A transmission elasticity of 0 implies no change in domestic prices from a change in international prices or exchange rates. Countries with highly imperfect markets and significant trade barriers have low transmission elasticities, while countries with open international markets have high transmission elasticities.

Unemployment rate-The percentage of the total work force of people actively seeking employment who are currently unemployed. The nonaccelerating inflationary rate of unemployment (NAIRU) is the rate of unemployment that will not lead to increasing inflation in the economy. In the United States, that rate has been estimated to be approximately 5 percent.

Last updated: Wednesday, May 30, 2012

For more information contact: David Torgerson and Mathew Shane