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Capital

QuestionAnswer
Define capital Anything man made which assists in the production of wealth
What is the payment for capital? Interest
Define social capital Assets/wealth owned by the community or society
Define working capital All finished goods, work in progress, and stocks of raw material
Define private capital Assets owned by individuals
Define fixed capital Stock of fixed assets such as plant, equipment and tools
Distinguish between capital and income Capital is whats owned whereas income is whats earned in a period of time
What is the rate of interest? The payment to capital, as those who sacrifice present consumption must be rewarded by those who need funds for present use.
Define marginal efficiency of capital Extra profit earned as a result of employing one extra unit of capital
Where will an entrepreneur invest? Where MEC is highest
Name five factors which affect MEC Cost of capital goods. Rate of interest. Selling price of good being sold. Fall in productivity of extra capital. Capital widening/deepening.
Define capital widening A scenario where the amount of capital per worker remains unchanged as the capital increases at the same rate of the worker
Define capital deepening A scenario whereby the capital to worker ratio increases as the economy is becoming more capital intensive
Name 5 reasons people save Deffered expenditure. Unforseen events. Speculation. Credit rating. Retirement.
Name three groups who save Individuals. Businesses. Governments.
Name 4 factors that affect amount saved Level of income. Rate of interest. Rate of inflation. DIRT Tax.
What does investment involve? Production of capital goods or addition to capital stock
What is gross investment? Total production of capital goods in an economy.
What is net investment? Gross expenditure on capital formation less depreciation
Name 8 which factors affect level of investment Rate of interest. Expectations of the economy. Cost of capital goods. International economic climate. Industrial relations climate. Availability of credit. Marginal efficiency of capital.
Why are investment and the production of capital goods important? Increased productive capability. Increased labour productivity. Increased employment. Increased GNP. Generates future wealth. Increased government revenue.
What does the loanable funds theory of interest rates state? Demand for funds is created by people who want assets immediately. Supply of funds is created by those willing to forgo present consumption. The rate of interests brings the two together.
What three motives does the Keynesian theory give for people holding their wealth? Transactions. Precautions. Speculations.
Is money for transaction related to interest rates No
Is money for precautions related to interest rates Slightly
Is money for speculations related to interest rates Closely
Created by: JackEatonK98
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