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MS 2220 Final CH 11
| Question | Answer |
|---|---|
| What are goods produced by the economic system that are used as inputs to produce other goods and services in the future? | Capital |
| What are material things used as inputs in the production of future goods and services. | Physical goods or tangible goods |
| What are the major categories of physical capital? | Nonresidential structures, durable equipment, residential structures, and inventories |
| What is capital that provides services to the public? | social capital or infrastructure |
| What are the most common examples of social capital? | Public works (roads and bridges) and public services (police and fire protection) |
| What are nonmaterial things that contribute to the output of future goods and services? | intangible goods |
| What is a form of intangible capital that includes the skills and other knowledge that workers have or acquire through education and training and that yields valuable services to a firm over time? | Human capital |
| For a single firm, the current market value (stock) of the firm's plant, equipment, inventories, and intangible assets make up _______ | Capital stock |
| ______ is new capital additions to a firm's capital stock | investment |
| Capital is measured _________ and investment is measured _________ | at a given point in time; over a period of time |
| The measurement of investment is referred to as ______ | the flow of investment |
| The decline in an asset's economic value over time is _____ | depreciation |
| What is the market in which households supply their savings to firms that demand funds to buy capital goods? | capital market |
| A contract between a borrower and a lender, in which the borrower agrees to pay the loan at some time in the future, along with interest payments along the way | Bond |
| The new saving (i.e. bond) adds to the household's _________ | stock of wealth |
| What is the income earned on savings that have been put to use through financial capital markets | capital income |
| What two most important forms of how households receive capital income? | interest and profits |
| the payments made for the use of money is _____ | interest |
| What are interest payments expressed as a percentage of the loan? | interest rate |
| What are adjustable or floating rate loans? | where borrowers and lenders agree to periodically adjust the level of interest payments depending on the market condidtions |
| What are fixed rate loans? | interest rate never varies |
| ______ is an ownership claim on a firm, entitling its owner to a profit share | A share of stock |
| What is defaulting? (loans) | not paying off the loan |
| Why might companies loan money to people or businesses that have a high risk of defaulting? | Very high interest rates |
| What is another word for net income of a firm? | Profit |
| What are the four financial markets? | Banks (business loans), venture capital, retained earnings, and the stock market |
| Describe business loans (in terms of investment projects) | Banks grant loans at a high interest rate (risk depends on collateral); banks have funds because of household savings |
| Describe venture capital (in terms of investment projects) | a venture capital fund take household savings and put them into high-risk ventures in exchange for a share of the profits if the new businesses succeed (i.e. biotechnology) |
| Describe retained earnings (in terms of investment projects) | internal funds from company funding investments |
| Describe the stock market (in terms of investment projects) | starting a company, raise funds by issuing shares of stock (households purchase stock with income they have decided not to spend), entitled to a share of the company's profits |
| What is the annual rate of return that a firm expects to obtain through a capital investment | Expected rate of return |
| The demand for new capital depends on the ______ | interest rate |
| When the interest rate is low, firms are _____ likely to invest in new plant and equipment than when the interest rate is high | more |
| The interest rate determines the ____ or the _____ of each project | direct; opportunity |
| Lower interest rates are likely to _____ investment in the economy as a whole | stimulate |
| higher interest rates are likely to ______ investment in the economy | slow |
Created by:
savelae