ECON 102 Lecture Notes - Lecture 22: Financial Capital

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23 Mar 2020

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ECON 102 Lecture Notes - Lecture 21: Aggregate Demand, Aggregate Supply, New Keynesian Economics

ECON 102 Lecture Notes - Lecture 22: Financial Capital

ECON 102 Lecture Notes - Lecture 23: Real Interest Rate, Nominal Interest Rate, Loanable Funds

Document Summary

The activity of providing the funds that finance expenditures on capital: money. What we use to pay for goods and services and factors of production and to make financial transactions: financial capital: The funds that firms use to buy physical capital: gross investment. The total amount spent on new capital: net investment. The change in the value of capital: wealth. The value of all the things that people own: saving. The amount of income that is not paid ion taxes or spent on consumption goods and services: financial capital market. Example 1: business often want short-term finance to buy inventories or to extend credit to their customers. Sometimes they get this finance in the form of a loan. Example 2: households often want finance to purchase big-ticket items, such as automobiles or household furnishings and appliances. They get this finance as bank loans, often in the form of outstanding credit card balances.

Related Questions

14. The factor market can best be described as, where __________. a. Families buy goods and services. b. Firms buy goods and services. c. Firms buy the services of labor, land and capital. d. The government sells goods and services.

15.Investment in the US is financed through __________. a. Private savings, surpluses in the government budget, and borrowing from the rest of the world. b. Private savings, deficits in the government budget, and borrowing from the rest of the world. c. Private lending, deficits in the government budget, and lending to the rest of the world. d. Private savings and borrowing from the rest of the world.

16. In the Circular Flow Model, goods and services produced by business firms are sold on __________. a.. The goods market b. In the factor market c. In the labor market d. In the financial market

17. If we import more than we export from the rest of the world, we __________. a.. We must borrow an equal amount from the rest of the world. b. We can lend an equal amount to the rest of the world. c. We have a surplus. d. We are helping to finance the investment of the rest of the world.

18. The Circular Flow Model shows that the family sector earns its income __________. a. Selling factors of production. b. Buying factors of production. c. Selling goods and services. d. Selling financial assets

2.1 Adam Smith is often called the father of economics. His famous book, The Wealth of Nations, talks about an invisible hand which automatically allocates goods to the persons most able to put them to good use. The invisible hand operates through the price mechanism for goods and services, so that individuals who trade on the market, while seeking only their own good, are actually efficiently allocating society's resources.

His ideas, if applied to modern capital markets, imply that these markets would efficiently allocate investment capital to the firms that would use the capital most efficiently in producing goods and services for society. But this would happen only if markets were left to operate without state intervention.

Do you think modern governments should leave capital markets unregulated? Why or why not?

2.2 Consider a business firm, organized as a proprietorship, which has $100,000 invested in assets a bank loan of $80,000 and $20,000 personal capital invested by the proprietor. If the firm becomes insolvent, who is at risk? Why?

2.3 In the following situation, moral hazard or adverse selection may be present. Indicate which you think is present, if any, and explain your choice.

a. An investor is asking for a bank loan to support a new business she wants to operate. She is unwilling to submit to a credit check.

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1. Which of the following groups of countries are all advanced economies?

		Hong Kong, Japan, France, and the United Kingdom
		Italy, the United States, China, and Russia
		Singapore, Russia, France, and Chad
		Australia, Brazil, and the United States

QUESTION 2

1. The most people live in ________ economies and the fewest people live in ________ economies.

		developing; emerging market
		advanced; emerging market
		emerging market; developing
		advanced; developing

QUESTION 3

1. Households and firms in the U.S. economy interact with those in the rest of the world in the ________ market and the ________ market.

		goods; financial
		government; goods
		goods; factor
		financial; factor

QUESTION 4

1. As a factor of production, oil reserves are counted as

		labor.
		capital.
		entrepreneurship.
		land.

QUESTION 5

1. ________ the owners of the factors of production, while ________ what amounts of those factors to hire.

		Households are; the government determines
		Firms are; households that determine
		The government is; firms determine
		Households are; firms that determine

QUESTION 6

1. The emerging market economies are

		the nations that are currently agricultural in nature.
		most of the nations of Western Europe.
		the largest grouping including the nations of China and India.
		in the transition from state-owned production to free markets.

QUESTION 7

1. In the United States, the productive factor that, as a group, receives the largest fraction of the nation's total income was

		consumption of goods and services.
		entrepreneurship.
		capital.
		labor.

QUESTION 8

1. Items bought by individuals to provide personal enjoyment are termed

		personal goods.
		consumption of goods.
		consumption or investment goods.
		standard goods.

QUESTION 9

1. In the advanced economies, ________ of the factories use advanced capital equipment and in the developing economies ________ of the factories use advanced capital equipment

		virtually all; none
		some; some
		virtually all; virtually all
		virtually all; some

QUESTION 10

1. The productive resource that includes all the "gifts of nature" is called

		land.
		labor.
		entrepreneurship.
		capital.

QUESTION 11

1. What would be an example of government good?

		Donald Trump purchases furniture for his office.
		Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
		The local driver's license office purchases a new digital camera and printer.
		Jake buys an iPhone.

QUESTION 12

1. The world population is approximately ________ people.

		2 trillion
		680 million
		6.8 billion
		6.8 million

QUESTION 13

1. Computers and insurance coverage produced in the United States and sold to people in other nations are categorized as

		U.S. exports of goods and services.
		U.S. government goods and services.
		foreign capital goods.
		U.S. consumer goods and services.

QUESTION 14

1. Of the following, the federal government obtains most revenue from

		corporate income taxes.
		excise taxes.
		sales taxes.
		social security taxes.

QUESTION 15

1. Items bought by businesses to help produce other goods and services are called

		capital goods.
		government goods and services.
		consumption of goods and services.
		exports of goods and services.

QUESTION 16

1. The majority of the income earned in the United States is paid in

		profit.
		interest.
		rent.
		wages.

QUESTION 17

1. Dan missed class the day the professor covered the circular flow model. Dan asked his friend Joan to explain markets to him. Joan correctly stated that a market

		must include a written contract between buyers and sellers.
		requires a physical location for buyers and sellers to get together.
		is only a place to purchase groceries.
		is an arrangement that brings buyers and sellers together.

QUESTION 18

1. The United States possesses a large amount of human capital. As a result of this fact, in the United States, there is a

		highly skilled and educated labor force.
		a large number of kind and generous humans.
		a large number of people and a great deal of land.
		a large amount of machinery and equipment.

QUESTION 19

1. Which of the following correctly lists the categories of factors of production?

		labor, machines, buildings, capital, and entrepreneurship
		land, buildings, capital, and entrepreneurship
		land, labor, capital, and entrepreneurship
		forests, fish, buildings, capital, and entrepreneurship

QUESTION 20

1. Which of the following correctly lists the categories of factors of production?

		capital, money, and labor
		hardware, software, land, and money
		land, labor, capital, and entrepreneurship
		machines, buildings, land, and money

QUESTION 21

1. In the United States, the poorest 20 percent of households receive roughly ________ percent of total income.

		10
		3
		15
		20

QUESTION 22

1. What would be an example of a consumption service?

		Jake buys an iPhone.
		The local driver's license office purchases a new digital camera and printer.
		Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
		Rhianna gets a haircut.

QUESTION 23

1. The total value of capital in the United States is around

		$47 trillion.
		$10 trillion.
		$100 trillion.
		$79 trillion.

QUESTION 24

1. An export good is a good produced

		by foreigners in the United States and purchased by U.S. households.
		in another country and purchased by U.S. residents.
		in the United States and sold to foreigners living in the United States.
		in the United States and sold in other countries.

QUESTION 25

1. ________ paid for the use of land; ________ paid for the services of labor; and ________ paid for the use of capital.

		Interest is; wages are; profit is
		Rent is; wages are; interest is
		Rent is; interest is; wages are
		Mortgages are; interest is; wages are

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ECON 102 Lecture Notes - Lecture 22: Financial Capital

ECON 102 Lecture Notes - Lecture 21: Aggregate Demand, Aggregate Supply, New Keynesian Economics

ECON 102 Lecture Notes - Lecture 22: Financial Capital

ECON 102 Lecture Notes - Lecture 23: Real Interest Rate, Nominal Interest Rate, Loanable Funds

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