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Midterm

Midterm1&2 Notes.docx

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Department
Economics
Course
EC140
Professor
David Scallen
Semester
Winter

Description
Physical Capital: a real productive resource Financial Capital: funds used to buy capital FinancialAssets: stocks, bonds, short-term security Interest Rate: percentage of financial assets If price of financial assets falls, then interest rate falls. e.g) If mutual fund decreases, so does the interest rate. Market for loadable funds: any funds that the government and society would provide and investors would buy. Crowding effect: if government enters into market, they take up room, leaving less room for investors. Funds that finance investment: 1) Household Savings: society lends (bank) out their disposable income to make interest. 2) Government budget surplus: - Surplus = supply increase - Deficit = demand decrease 3) Borrowing from the rest of the world: - Export more than import = net lender - Import more than export = net borrower - Net taxes = taxes paid to government – subsidies Investment (I) = household/private savings (S) + [Taxes (T) – Government expenditure (G)] + [Imports (M) – Exports (X)] • If T > G = surplus, if G > T = deficit • S + (T-G) = national savings; (X-M) = rest of the world - C = b(1-t) + a - t = tax rate; T= total taxes Investments = househ
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