Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 17, Problem 1RQ
To determine
Physical investment and physical capital against financial investment and financial capital.
Expert Solution & Answer
Explanation of Solution
Physical investment refers to the acquisition of capital goods. Capital goods, such as equipment, structures, and software, are used for the production of other goods. Physical capital refers to the labor force or man-made products used for the manufacturing process. Financial investment refers to the acquisition of financial assets such as equity, bond, shares, and so forth. Financial assets represent a store of wealth that connects present income flows to future consumption.
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Students have asked these similar questions
What is the difference between financial investment and economic investment?
1)
There is no difference between the two.
2)
Financial investment refers to the purchase of financial assets only; economic investment refers to the purchase of any new or used capital goods.
3)
Economic investment is adjusted for inflation; financial investment is not.
4)
Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.
Define private saving, public saving and national saving. How are they related?
"In the financial sector and in the economy, commercial banks play an important part. As a core component of the financial economy, banks efficiently assign savers' assets to risk-takers." Discuss.
Chapter 17 Solutions
Macroeconomics (Fourth Edition)
Knowledge Booster
Similar questions
- Classify each of the following based on the macroeconomic definitions of saving and investment.arrow_forwardThree students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects: Student Return (Percent) Carlos 4 Felix 7 Janet 15 Assume borrowing and lending is prohibited, so each student uses only personal saving to finance his or her own investment project. Complete the following table with how much each student will have a year later when the project pays its return. Student Money a Year Later (Dollars) Carlos Felix Janet Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate rr. A student would choose to be a lender in this market if his or her expected rate of return is than rr. Suppose the interest rate is 6 percent. Among these three students, the quantity of loanable funds supplied would be ,…arrow_forwardWhat would happen to the amount of economic investment made today if firms expect the future returns to such investment to be very low?arrow_forward
- What is Capital expenditure?arrow_forward3.3 Explain and show graphically how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds. 3.4 Explain and show graphically how an increase in expected profits from firm investment projects affects the equilibrium interest rate and the equilibrium quantity of loanable funds. 3.5 Explain and show graphically how an increase in government spending (i.e. budget deficit) affects the equilibrium interest rate in the market for loanable funds.arrow_forwardWhy do economists use the terms “investment” and “capital” in very diferentcontexts (physical investment and physical capital versus fnancial investmentand fnancial capital)?arrow_forward
- Use the loanable funds market to illustrate the effect of the following events on the equilibrium. Illustrate the effects on the interest rate and quantity of investment-savings a) The proportion of retired people in the population goes up. Think that usually retired people generally save less than working people at any interest rate. b) At any given interest rate, consumers decide to save more (assume the budget balance is zero). c) At any given interest rate, businesses become very optimistic about the future profitability of investment spending (assume the budget balance is zero).arrow_forwardDefine the term Net Investment?arrow_forwardThe following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. (Graph in image) (a. Saving, b. Investment) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied (a. increases, b. decreases). Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is (a. greater, b. less) than the quantity of loans demanded, resulting in a (a. surplus, b. shortage) of loanable funds. This would encourage lenders to (a. raise, b. lower) the interest rates they charge, thereby (a. increasing, b. decreasing) the quantity of loanable funds supplied and (a. increasing, b. decreasing) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ____ %.arrow_forward
- Briefly discuss THREE economic policies that encourages household savings.arrow_forward2. What is the capital market (include in your answer the characteristics of the capital market and the types of securities that are traded in the capital market)?arrow_forwardWhat is the Net-investment test?arrow_forward
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