Chap17 - Chapter 17 Capital and Financial Markets Capital Capital = buildings and equipment used to produce output Do not confuse capital with

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Unformatted text preview: Chapter 17: Capital and Financial Markets Capital Capital = buildings and equipment used to produce output Do not confuse capital with “financial capital” Gains from “roundabout production” (producing goods that are used to produce other goods) Capital accumulation requires savings (forgone consumption) Demand for capital Tied to the MRP of capital over the course of its productive life. Since capital lasts for a long period, firms must take into account the marginal revenue generated by capital and its marginal cost over its entire productive life. Additional capital is used if the present value of the additional benefits is higher than the present value of the additional cost. Present value = current value of future benefits Present value $1000 received today is worth more than $1000 received in 5 years. than $1000 received in 5 years....
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This note was uploaded on 03/03/2009 for the course ECON 101 taught by Professor Dohan during the Spring '08 term at CUNY Queens.

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Chap17 - Chapter 17 Capital and Financial Markets Capital Capital = buildings and equipment used to produce output Do not confuse capital with

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