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Capital LC
Term | Definition |
---|---|
Capital | Anything manmade used in the production of goods and services |
Interest | The return to capital. |
Fixed Capital | Stock of fixed assets. |
Working Capital | Stock of Raw materials, partly finished and finished goods (work in progress). |
Social capital | Capital owned by society (schools, roads, hospitals, etc). |
Private Capital | Capital/assets owed by individuals. |
Savings | Income not spent. |
Capital formation | The process of spending money on capital goods. |
Capital widening | An increase in capital leaves the capital to labour ratio unchanged. |
Capital Deepening | An increase in capital increases the capital to labour ratio. |
Factors affecting the level of saving | Level of income; Rate of interest; Level of social welfare benefits (pensions); DIRT; Rate of inflation |
Four reasons why people save | Deferred expenditure; To earn interest; Unforeseen events; Retirement |
According to the Classical Theory of Interest Rates, supply means | The amount of money being saved with the financial institutions. |
According to the Classical Theory of Interest Rates, demand means | The demand for loans from the financial institutions. |
According to the Liquidity Preference Theory of Interest Rates, supply means | The amount of money in circulation. |
According to the Liquidity Preference Theory of Interest Rates, there are three reasons people demand money: | The transaction motive; The precautionary motive; The speculative motive |
Factors Influencing Level of Investment | Entrepreneurs’ expectations about future profits;The rate of interest; The cost of capital goods;Government policy; The state of technology;The domestic economic climate; The international economic climate |