Bade_Parkin_Macro_Lecture_CH09

Bade_Parkin_Macro_Lecture_CH09 - Investment and Saving...

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Investment and Saving CHAPTER 9
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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 and the amount of investment and saving. Explain how government influences the real interest rate, investment, and saving. 2 3
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Physical capital The tools, instruments, machines, buildings, and other constructions that have been produced in the past and that are used to produce goods and services. Financial capital The funds that firms use to buy and operate physical capital. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Investment and Capital 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
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Figure 9.1 illustrates the relationship between capital and investment. On January 1, 2006,Tom’s DVD Burning, Inc. had DVD recording machines valued at $30,000. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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During 2006, 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 2006,Tom had capital valued at $40,000. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Wealth and Saving Wealth The value of all the things that a person owns. Saving The amount of income that is not paid in taxes or spent on consumption goods and services; saving adds to wealth. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Financial Markets Financial markets The collections of households, firms, governments, banks, and other financial institutions that lend and borrow. Global Financial Markets Lenders seek the highest possible real interest rate, and borrowers seek the lowest possible real interest rate in a single global financial market . 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Financial markets are organized in four groups: Stock markets Bond markets Short-term securities markets Loans markets 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Stock Markets Stock A certificate of ownership and claim to the profits that a firm makes. Stock market A financial market in which shares of companies’ stocks are traded. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Bond Markets Bond A promise to pay specified sums of money on specified dates; it is a debt for the issuer. Bond market A financial market in which bonds issued by firms and governments are traded. 9.1 CAPITAL, INVESTMENT, WEALTH, SAVING
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Short-Term Securities Markets Short-term securities are commercial bills and Treasury bills—promises by large firms and government to pay an agreed sum 90 days in the future. Loans Markets
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This note was uploaded on 04/10/2008 for the course ECO 204 taught by Professor Caporale during the Spring '08 term at University of Dayton.

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Bade_Parkin_Macro_Lecture_CH09 - Investment and Saving...

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