ECON 1010 Chapter Notes - Chapter 23: Real Interest Rate, Nominal Interest Rate, Credit Union
Document Summary
Textbook notes: financial institutions and markets play a crucial role in the economy by providing channels for savings to flow to finance the investment in new capital that helps the economy grow, difference between, finance and money. Finance is used to describe the activity of providing the funds that finance expenditures on capital. Study of finance looks at how households and firms obtain and use financial resources and how they cope with the resulting risks. Money is what we use to pay for goods and services and to make other financial transactions. Finance and money are closely interrelated but must be differentiated: physical capital and financial capital. Physical capital: 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: funds that firms use to buy physical capital. Businesses want short-term finance to buy inventories or to extend credit to their customers.