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Chapter 23.docx

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Western University
Economics 1022A/B
Desmond Mc Keon

Chapter 23 23.1- Financial Institutions and Financial Markets To study the economics of financial institutions and markets we distinguish between  Finance and money (how households and firms use money, how much of it they hold, how banks create and manage it, and how its quantity influences the economy)  Physical capital (tools that have been produced in the past and that are used today to produce goods and services) and financial capital (funds firms use to buy physical capital)  Gross investment is the total amount spend on purchases of new capital and on replacing depreciated capital o Depreciation is the decrease in the quantity of capital o Net Investment= Gross Investment – Depreciation  Wealth is the value of all things that people own and saving is the amount of income that is not paid in taxes or spend on consumption goods and services (saving increases wealth; wealth also increases when the market value of assets rises-called capital gains-and decreases when the market value of assets falls-called capital losses)  Saving is the so
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