EC140 Chapter Notes - Chapter 23: Government Budget Balance, Longrun, Credit Union

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17 Oct 2012
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EC140 Full Course Notes
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EC140 Full Course Notes
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Document Summary

In studying the economics of financial institutions and markets, we distinguish between: Finance describes the activity of providing funds that finance expenditures on capital. The study of finance looks at how households and firms obtain and use financial resources and how they cope with the risks that arise in this activities. Money is what we use to pay for goods and services and factors of production and to make financial transactions. The study of money looks at how households and firms use it, how much of it they hold, how banks create and manage it, and how its quantity influences the economy. Physical capital is the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services. Financial capital is the funds that firms use to buy physical capital. Investment increases the quantity of capital and depreciation decreases it.