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Flashcards in Capital Deck (11):
1

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.

2

Define fixed capital.

Fixed capital is the stock of fixed assets.

3

Define social capital.

Social assets are assets owned by the community.

4

Define capital widening.

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

5

Define capital deepening.

Capital deepening occurs when capital stock increases faster than labour.

6

Define investment.

The production of capital goods is investment.

7

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.

8

Define nominal interest rate.

The nominal interest rate is the actual interest rate.

9

Define real interest rate.

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

10

Define capital.

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

11

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.