ECN 204 Lecture Notes - Lecture 9: Price Level, Factor Cost, Fixed Capital

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Gross investment: machinery, equipment, tools, construction (residential and industrial, changes in inventories (unsold goods, must include increases in inventories. Includes al materials/ equipment used in production e. g. machinery, buildings, raw material, semi finished products = productive capacity. Gross investment: total expenditure spends on adding new capital goods and/or replacing old capital goods. Gdp as the sum of all factor payments. Value of factors outputs= value of incomes. Profits of corporations and government enterprises before taxes. Profits can be divided into three categories: 1) corporate income taxes, 2) Income from farms and unincorporated businesses: a mixture of income from labor, capital, and entrepreneurship, Net domestic product at factor cost (basic prices): sum of all income earned by factors of production as wages, interest, rent, and profit. Rich and poor economies have different price levels. The lower the price level, the greater the purchasing power. Purchasing power will be more in poor countries.

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