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Economics (708)
Chapter 23

Chapter 23 Textbook Notes

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Department
Economics
Course
Economics 1022A/B
Professor
Jeannie Gillmore
Semester
Winter

Description
thEcon Chapter 23 Notes January 30 Financial Institutions and Financial Markets y We must distinguish betweeno Finance and money o Physical capital and financial capital Finance and Money y We use the term finance to describe the activity of providing the funds that finance expenditures on capital o The study of finance looks at how households and firms obtain and use financial resources sand how they cope with the risks y Money is what we use to pay for goods and services and factors of production and to make financial transactions o The study of money looks at how households and firms use it how much of it they hold how banks create and manage itand how its quantity influences the economy Physical Capital and Financial Capital y Physical capital is the tools instruments machines buildings and other items that have been produced in the past and that are used today to produces goods and services o when economists use the term capita they mean physical capital y financial capital the funds that firms use to buy physical capital y in the aggregate production function Ch 22 the quantity of capital is fixed o an increase in the quantity of capital increases production possibilities and shifts the aggregate production function upward Capital and Investment y the quantity of capital changes because of investments and depreciation y investment increases the quantity of capital and depreciation decreases it y gross investment the total amount spent on new capital y net investment the change in the value of capitalo net investmentgross investment minus depreciationWealth and Saving y wealth the value of all the things that people own o what people own is related to income y saving the amount of income that is not paid in taxes or spent on consumption goods and services o savings increases wealth
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