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Flashcards in Capital Deck (11):

Define MEC.

Marginal efficiency of capital is the extra revenue (MRP) of an additional unit of capital being employed, minus their cost which gives the extra profit.


Define fixed capital.

Fixed capital is the stock of fixed assets.


Define social capital.

Social assets are assets owned by the community.


Define capital widening.

Capital widening occurs when the increase in capital stock leaves the capital/ labour ratio unchanged.


Define capital deepening.

Capital deepening occurs when capital stock increases faster than labour.


Define investment.

The production of capital goods is investment.


Define saving.

Saving us the act of non-spending or non-consumption and is dependant on the level of income and the rate of interest.


Define nominal interest rate.

The nominal interest rate is the actual interest rate.


Define real interest rate.

The real interest rate is the nominal interest rate adjusted for inflation.


Define capital.

Anything man-made which is used to produce goods and services.


Define the liquidity trap.

The liquidity trap is a Keynesian idea, that suggests when return from investments is lower than expected, investment falls, a recession begins and cash holdings in banks rise. People continue to hold cash expecting spending and investment to be low. This is a self-fulfilling trap.