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Capital
economics
| Question | Answer |
|---|---|
| fixed capital | fixed assets in an economy ie) machinery, buildings |
| Working capital | finished, unfinished goods, raw materials which are in a companies stock |
| social capital | capital which belong to the general public ie) hospitals, roads, schools |
| gross capital formation | the total value of capital created in an economy in a country over a year |
| net capital | gross capital minus deprecaition |
| depreciation | using up capital due to machines wearing out or the using up of raw materials |
| capital widening | the increase of labour and capital in the business which keeps the labour: capital ratio the same |
| capital deepening | increasing the capital to labour ratio so that there is more capital than before. This means the business has become more capital intensive than labour intensive. |
| Factors affecting the level of saving | 1. Interest rates 2. Inflation 3. Expectations 4. DIRT- Deposit interest retention tax |
| factors affecting the level of investment | 1. government policy (subsidies and incentives) 2. infrastructure 3. Interest rates 4. Expectations |
| Factors affecting rates of interest | 1. Monetary policy of the ECB 2. Demand for loans 3. creditworthiness of the borrower 4. Type of loan |
| 2 ways to determine interest rates | 1. loanable funds theory / Classical theory 2. Liquidity preference (Keynes) |
| Liquidity preference motifs | 1. Transactions (inelastic) 2. Precautionary (relatively inelastic) 3. Speculative (elastic) |
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