Economics Vocabulary
Part of the Business & Work vocabulary group in Teacher-In-A-Box, this lesson explores the words used to talk about the economy — growth, inflation, employment, government spending and business — and how they connect to one another.
Connected vocabulary, not a glossary
Economics vocabulary works as a system.
When people discuss the economy — in the news, at work, or in everyday conversation — words like inflation, interest rates, growth, unemployment, revenue and profit rarely appear one at a time. They appear together, connected to one another.
This lesson is not a list of economics terms to memorise in isolation. Instead, it groups vocabulary into the clusters economics language actually uses, shows how the words in each cluster relate to one another, and gives you practice using them the way they naturally appear.
You will leave this lesson understanding not only what individual words mean, but how economic vocabulary works together when people actually discuss the economy.
1. The economy and economic change
The economy changes, and the vocabulary changes with it.
Before looking at how the economy changes, it helps to separate three closely related words.
economy, economics, economic
economy (noun) — the system of production, trade and money in a country or region.
economics (noun) — the academic subject that studies how economies work.
economic (adjective) — relating to the economy or to economics.
“The national economy grew by 2% last year.” · “She’s studying economics at university.” · “The government announced new economic policies.”
growth → slowdown → recession → recovery
Economists describe the state of the economy as a sequence of changing conditions.
growth — the economy is producing more than before: “Economic growth reached 3% this quarter.”
slowdown — growth continues, but at a slower pace: “There are signs of an economic slowdown.”
recession — output falls for a sustained period, rather than just growing more slowly: “The country entered a recession last year.”
recovery — output begins to rise again after a recession or slowdown: “Analysts expect a gradual recovery next year.”
This sequence is a useful way to picture how the vocabulary connects, not a fixed law of how every economy behaves — a slowdown does not always lead to a recession. The point here is the language, not a prediction about any particular economy.
Measuring the economy: output and GDP
Output is a general term for the goods and services produced by an economy. GDP (gross domestic product) is a widely used measure of the monetary value of final goods and services produced within a country over a particular period.
“GDP grew by 2% in the first quarter, showing an increase in the country’s overall output.”
2. Prices and the cost of living
One change in prices leads to several others.
These words describe a chain of cause and effect that appears constantly in economic reporting.
inflation rises → prices increase → purchasing power may fall
inflation — a general rise in prices across the economy over time: “Inflation reached 6% last year.”
deflation — the opposite: a general fall in prices: “Deflation can discourage spending, since people expect prices to fall further.”
cost of living — how much money people need for everyday expenses such as housing, food and transport: “The cost of living has risen sharply in cities.”
purchasing power — how much people can actually buy with their money: “If wages don’t keep up with inflation, purchasing power falls.”
interest rate — the percentage charged for borrowing money or paid on savings. Central banks set key policy interest rates, which influence many other interest rates in the economy: “The central bank raised interest rates to slow inflation.”
Natural word partnerships
For the general idea behind combinations like these, see:
3. Employment
The labour market has its own vocabulary.
Relationships and distinctions matter more here than quantity.
employment / unemployment — having a job, or not having one: “Unemployment fell to its lowest level in a decade.”
unemployment rate — the percentage of the labour force without a job: “The unemployment rate remained steady at 4%.”
labour market / workforce — the labour market is the overall system of jobs, employers and workers; the workforce is the people actually working within it: “The labour market has tightened as the workforce ages.”
A distinction worth learning carefully
Wage, salary and income are not interchangeable.
All three describe money a person receives, but each answers a different question.
wage
Payment usually tied to hours worked or units of work completed, often paid weekly or by the hour.
“Factory workers are paid an hourly wage.”
salary
A fixed, regular payment for a job, usually stated as an annual figure and paid monthly regardless of hours worked.
“Her salary is €42,000 a year.”
income
The broadest term: all the money a person receives, whether from a wage, a salary, investments, or other sources.
“Her income includes her salary plus rental income from a property.”
4. Government and the economy
Governments raise money and spend it.
This vocabulary is used to describe taxation, spending and debt — not to argue for or against any particular policy.
Governments raise money through tax (the general system is taxation) and spend it as government spending or public spending. A subsidy is money the government gives to support a person, business, or activity — for example, a subsidy for farmers or renewable energy.
Two words often confused
A budget deficit is not the same as national debt.
A deficit is what happens in one year; debt is the accumulated total.
budget deficit
The gap in a single year, when a government spends more than it collects in that year.
“The government ran a budget deficit this year, spending more than it collected in tax.”
national / public debt
The total amount a government owes, built up from years of deficits added together.
“National debt has grown after several years of budget deficits.”
A country can reduce its deficit in a given year while its overall debt is still high.
5. Business and markets
Several of these words come in pairs.
Each word here describes one side of the same relationship.
demand — how much consumers want to buy; supply — how much producers make available: “When demand rises faster than supply, prices tend to increase.”
consumer — a person who buys goods or services; producer — a person or company that makes them: “Increased competition between producers can benefit consumers through lower prices.”
market — the space, physical or not, where buying and selling happens: “The housing market has cooled this year.”
Two words that both involve money coming in
Revenue is not the same as profit.
A business can have high revenue and still make very little profit.
01
Revenue
All the money a business receives from sales, before any costs are subtracted.
“The company earned €2 million in revenue from sales last year.”
02
Profit
What remains after a business subtracts its costs from its revenue.
“After €1.7 million in operating costs, the company’s profit was €300,000.”
Put together: a company receives €2 million from sales (its revenue). It spends €1.7 million running the business. The €300,000 left over is its profit. If costs had been higher than revenue, the company would have made a loss instead.
Vocabulary in context
See the vocabulary working together.
Here is a short, realistic passage using several words from this lesson together, the way they would actually appear in a news report or conversation.
Inflation rose to 6% last year as energy and food prices increased. The central bank responded by raising interest rates. Economic growth subsequently slowed, while unemployment remained relatively low. Government spending stayed high, and the budget deficit widened as a result.
Unpacking what this vocabulary communicates:
inflation rose to 6% → prices across the economy increased noticeably over the year.
the central bank raised interest rates → a deliberate policy response, intended to slow inflation by making borrowing more expensive.
growth subsequently slowed → the economy was still growing, just at a slower pace than before — not the same as a recession.
unemployment remained relatively low → relatively few people in the labour market were without work, even while growth slowed.
the budget deficit widened → the government spent even more than it collected in tax this year than before, distinct from the country’s overall national debt.
Notice how the vocabulary works as a connected system: one change (rising inflation) leads to a policy response (higher interest rates), which has a further effect (slower growth), while a separate figure (unemployment) is reported alongside it without necessarily moving in the same direction.
Don’t confuse these
Choosing the right word changes what a sentence communicates.
economy / economics / economic
A noun for the system (economy), a noun for the academic subject (economics), and an adjective (economic). Ask: am I naming the system, the subject, or describing something?
economic / economical
Economic relates to the economy (“economic policy”). Economical means efficient or money-saving (“an economical car uses less fuel”).
wage / salary / income
Ask: is this pay tied to hours (wage), a fixed regular job payment (salary), or all money received from any source (income)?
revenue / profit
Ask: is this the total money coming in (revenue), or what’s left after costs (profit)?
debt / deficit
Ask: is this one year’s shortfall (deficit) or the total accumulated amount owed (debt)?
rise / raise
Rise is intransitive — something rises by itself (“prices rose”). Raise is transitive — someone raises something (“the central bank raised interest rates”).
borrow / lend
The person who receives money borrows it; the person or institution who provides it lends it.
cost / price / value
Cost is what a producer spends to make something; price is what a buyer pays for it; value is what something is actually worth.
Natural word partnerships
These combinations are worth learning as fixed units.
Common errors
Mistakes are useful when you understand why they happen.
She studies economy at university.
She studies economics at university.
The academic subject is economics, not economy.
The government introduced new economical reforms.
The government introduced new economic reforms.
Economic relates to the economy; economical means efficient or cost-saving.
The company made €2 million in profit from sales, then spent €1.7 million on costs.
The company made €2 million in revenue from sales, then spent €1.7 million on costs.
The full amount received before costs are subtracted is revenue, not profit.
National deficit has grown for a decade.
National debt has grown for a decade.
An accumulated total built up over time is debt; a deficit is a single year’s shortfall.
The central bank rose interest rates.
The central bank raised interest rates.
Raise is transitive and needs an actor doing the raising; rise is intransitive (“interest rates rose”).
The bank lent me money, so now I have a loan to lend back.
The bank lent me money, so now I have a loan to repay.
Once you have received money, you borrowed it and now need to repay it — you don’t “lend it back.”
My income is €18 an hour.
My wage is €18 an hour.
An hourly figure tied to hours worked is a wage. Income is the broader total from all sources.
The economy is making growth this year.
The economy is growing this year. / Economic growth is expected this year.
“Growth” is not typically the object of “make” in economics vocabulary.
The company did a profit of €300,000.
The company made a profit of €300,000.
Profit naturally collocates with make, not do.
Your turn
Choose the word that fits.
These activities are part of the learning process. There are no scores, no grades and no limit on how many times you may try.
A company earned €2 million from sales before its operating costs were deducted. Which word describes the €2 million?
✅ Exactly! Revenue is the total amount received from sales, before costs are subtracted.
❎ Not quite. Think about whether costs have already been subtracted or not.
Think about whether costs have already been subtracted or not.
After operating costs of €1.7 million were subtracted, €300,000 remained. Which word describes that €300,000?
✅ Exactly! Profit is what remains once a business’s costs have been subtracted from its revenue.
❎ Not quite. This is what’s left after costs are taken out of revenue.
This is what’s left after costs are taken out of revenue.
“Prices ___ by 5% last year.” Which word fits?
✅ Exactly! “Rise” is intransitive — prices rise by themselves, with no stated actor.
❎ Not quite. Is there an actor doing the raising, or is this happening on its own?
Is there an actor doing the raising, or is this happening on its own?
“The company ___ its prices by 5%.” Which word fits?
✅ Exactly! “Raise” is transitive and needs an object — here, the company raises its prices.
❎ Not quite. Here there’s a clear actor (the company) performing the action.
Here there’s a clear actor (the company) performing the action.
Maria is paid €22 per hour and her hours vary week to week. Which word best describes her pay?
✅ Exactly! Pay tied to hours worked, especially when hours vary, is a wage rather than a fixed salary.
❎ Not quite. Notice that her pay depends on hours worked, and those hours change.
Notice that her pay depends on hours worked, and those hours change.
“This year, the government spent more than it collected in tax.” Which phrase describes this situation?
✅ Exactly! A single year’s shortfall between spending and tax collected is a budget deficit; debt is the accumulated total over time.
❎ Not quite. Focus on the timeframe — this describes a single year.
Focus on the timeframe — this describes a single year.
Try it another way
Complete the sentences.
Type the word that fits each gap.
✅ Exactly! Central banks raise interest rates as a deliberate policy response.
❎ Not quite. Central banks act on this figure directly when responding to inflation.
✅ Exactly! This is the accumulated total, not a single year’s shortfall.
❎ Not quite. This word refers to the accumulated total, not a single year’s shortfall.
✅ Exactly! Consumers are the ones doing the buying in this relationship.
❎ Not quite. Who is doing the buying in this relationship?
✅ Exactly! Output begins to rise again after a recession — that’s a recovery.
❎ Not quite. What is it called when output begins to rise again after a recession?
✅ Exactly! Inflation is a general rise in prices over time.
❎ Not quite. Think of the word used earlier in this lesson for a general rise in prices.
Notice the difference
Rewrite each sentence using the correct word.
The country’s economical growth slowed this year.
✅ Exactly! Economic means related to the economy. Economical means efficient, inexpensive to operate, or avoiding unnecessary expense.
❎ Not quite. Do you need the adjective meaning related to the economy, or the adjective meaning efficient or cost-saving?
The bank raised me a loan of €10,000.
✅ Exactly! The bank is providing the money, so the bank lends; the person receiving it borrows.
❎ Not quite. Who is providing the loan, and who is receiving it?
Alternate practice
Use the vocabulary productively, not just recognise it.
Complete the summary
Fill each gap with one word from this lesson: inflation, interest rates, growth, unemployment, deficit.
“___ rose sharply last year, prompting the central bank to raise ___. As a result, economic ___ slowed, although ___ stayed low. Government spending remained high, and the budget ___ widened.”
Sort into groups
Sort these words into the conceptual cluster they belong to (The Economy & Economic Change / Prices & Cost of Living / Employment / Government & the Economy / Business & Markets):
Match related or opposite concepts
Try matching each pair from memory before checking: growth ↔ recession, consumer ↔ producer, profit ↔ loss, borrow ↔ lend, supply ↔ demand.
Rewrite for precision
Rewrite each sentence using a more precise economics word:
“The company earned a lot of money this year, but most of it went on costs.”
“Prices have gone up a lot recently, and it’s harder to afford things.”
Describe a situation
In two or three sentences, describe a simple economic situation using at least four words from this lesson — for example, a small business deciding whether to raise its prices, or a government responding to rising inflation.
Quick review
Five clusters, connected by relationships and distinctions.
The economy & economic change — economy / economics / economic, and the growth → slowdown → recession → recovery sequence.
Prices & cost of living — inflation and deflation, linked to purchasing power and interest rates.
Employment — wage vs salary vs income, within the wider labour market.
Government & the economy — budget deficit (one year) vs national debt (accumulated total).
Business & markets — supply ↔ demand, consumer ↔ producer, and revenue vs profit.
Watch for — economic vs economical, rise vs raise, borrow vs lend, cost vs price vs value.
Remember
Economic vocabulary rarely exists in isolation.
Words such as inflation, interest rates, growth, unemployment, revenue and profit become easier to understand when related terms are learned together — their relationships, contrasts and natural combinations are part of understanding how economic language actually works.
Related vocabulary
Explore related areas of vocabulary.
More Business & Work vocabulary — including Finance, Job Interviews, Workplace Communication and Marketing — is planned for this section.