17GottInterestShow

17GottInterestShow - Ch. 17 Interest, Rent, and Profit MPP...

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17 - 1 Ch. 17 Interest, Rent, and Profit MPP C and MRP C Loanable funds and physical capital Interest rate determination Ethics of earning interest-based income The present value of a property Pure rent Differential rent
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17 - 2 Capital and productivity Neoclassical theory: Capital -- productive in same way that workers are. Productivity of capital calculated in the same way as productivity of workers. Marginal Productivity Theory Income in market economy is distributed according to marginal productivity of the factor of production. Justifies the distribution of income
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17 - 3 MRP C of Capital Demand curve for loanable funds -- identical to the firm’s MRP C curve. (Like DD L ) Each borrowed dollar must produce revenue for the firm > or = to the rate of interest . LF TR MRP = Loanable funds (LF) Money a firm employs to purchase the physical capital and raw materials
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17 - 4 EXHIBIT 1A DEMAND FOR LOANABLE FUNDS Assume price of product = $2.
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17 - 5 EXHIBIT 1B DEMAND FOR LOANABLE FUNDS What can shift the MRP C ? Price of product More efficient use
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17 - 6 Loanable Funds (Financial Capital) to Physical Capital (Equipment) Different than labor: Capital differs in physical character. [Picks, shovels or drill] Capital equipment Assumption : first analyze options of physical capital; then purchase appropriate physical capital.
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Demand for Loanable Funds Interest rate
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This note was uploaded on 07/14/2010 for the course ECON 1 taught by Professor Bergstrom during the Fall '07 term at UCSB.

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17GottInterestShow - Ch. 17 Interest, Rent, and Profit MPP...

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