Ch093 - CHAPTER CHECKLIST <When you have completed your...

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Cobbe ECO2013 F03 Chapter 9 Page 1 of 15 < When you have completed your study of this chapter, you will be able to C H A P T E R C H E C K L I S T Define and explain the relationships among capital, investment, wealth, and saving. 1 Explain how investment and saving decisions are made and how these decisions interact in financial markets to determine the real interest rate. Explain how government influences the real interest rate, investment, and saving. 2 3 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING Physical capital The tools, instruments, machines, plant, equipment, buildings, and other durable constructions and products that: - have been produced in the past, and - are used to produce goods and services. Financial capital The funds that firms use to buy and operate physical capital.
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Cobbe ECO2013 F03 Chapter 9 Page 2 of 15 < Capital and Investment Gross investment The total amount spent on new capital goods. Net investment The change in the quantity of capital—equals gross investment minus depreciation. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING Figure 9.1 illustrates the relationship between capital and investment. On January 1, 2003,Tom’s DVD Burning, Inc. had DVD recording machines valued at $30,000. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING During 2003, the value of Tom machines falls by $20,000, depreciation. He spent $30,000 on new machines—gross investment. Tom’s net investment was $10,000, so at the end of 2003,Tom had capital valued at $40,000. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Cobbe ECO2013 F03 Chapter 9 Page 3 of 15 < Wealth and Saving Wealth The value of all the things that a person, household, or nation owns. Saving For a household, the amount of income that is not paid in taxes or spent on consumption goods and services — adds to wealth. For a country, the amount of national income not consumed or paid as taxes. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING < Financial Markets Financial markets The interactions between households, firms, governments, banks, and other financial institutions as they lend and borrow. < Global Financial Markets Lenders seek the highest possible real interest rate, given risk, and borrowers seek the lowest possible real interest rate in a single global financial market. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING Financial markets can be divided into four groups: Stock markets Bond markets Short-term securities markets Loans markets 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Cobbe ECO2013 F03 Chapter 9 Page 4 of 15 Stock Markets Stock A certificate of fractional ownership and claim to the profits of an incorporated firm. Usually involves ‘limited liability’ – the innovation that made widespread stock ownership, and large firms, possible. Stock market
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Ch093 - CHAPTER CHECKLIST &lt;When you have completed your...

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