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