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39 Cards in this Set

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Gross Investment
total amount spent on new capital goods
(Net Investment + Depreciation)
Depreciation
how much the market value fell
(Net Investment – Gross Investment)
Net Investment
(Gross Investment – Depreciation)
(Capital stock at the end of current year - Capital Stock at end of previous year)
Capital
(Money spent at beginning of year + net investment)
Physical Capital
tools, instruments, machines, buildings, etc. produced in the past and used to produce goods and services
Financial Capital
funds that firms use to buy and operate physical capital
Wealth
value of everything a person owns
Saving
the amount of income that is not paid in taxes or spent on consumption good and services. (ADDS TO WEALTH)
(= income – consumption expenditure)
Wealth increases when:
that value of assets rises (capital gain)
The change in wealth:
includes capital gains and losses and saving excludes these items
Financial Markets
Are global and funds flow from one country to another in search of the highest available real interest rate
Financial Markets Trade
Trade: stocks, bonds, short-term securities, and loans
Price Financial Markets Determine
is the real interest rate
Financial Markets Composed of:
households, firms, governments, banks, and other financial institutions
a decrease in expected profit
= decrease in investment demand and leftward shift on ID curve
ID Curve
Shift Left = decrease
Shift Right = increase
SS Curve
Shift Left = decrease
Shift Right = increase
Increase in Saving Supply
-increase in disposable income
-decrease in buying power of net assets
- decrease in expected future disposable income
Disposible Income
income earned – net taxes
Increase in Expected Future Disposable Income
= less SS because they will spend more money today and save less
Crowding Out Effect
(happens when you raise the real interest rate & Investment is higher than private spending)
-When the govt. has neither surplus or deficit govt. saving
=zero and total saving = private saving
Total Saving =
Private Saving– Government Deficit Budget
Boost Government Investment By
Investment – Total Saving
Real Interest Rate
where Investment = total saving
Saving is
NOT consuming
Investing
Plant
Equipment
Structures
Patents
Information Technology
Investing adds to
capital stock
Capital Stock
accumulation of past investment
during recession
investment decreases
Financial Markets include:
Instruments
Institutions
Instruments
-Loans
-Stocks
-Bonds
-T-bills
-Commercial Paper
Institutions
-Banks
-Mutual Funds
-Brokers
-Pension Funds
Savers
Households
Businesses
Rest of the World
ID comes from
businesses
SS Comes from
households
Increase in Interest Rates
SS - up
ID - down
Make ID increase
- Boom
- Optimism
- Population
- Technological breakthroughs
Make ID decrease
- Recession
- Pessimism