Chapter 17 Flashcards
Business fixed investment
Equipment and structures that businesses buy for use in future production.
Residential investment
New housing bought by people to live in and by landlords to rent out.
Inventory investment
The change in the quantity of goods that firms hold in storage, including materials and supplies, work in process, and finished goods.
Neoclassical model of investment
The theory according to which investment depends on the deviation of the marginal product of capital from the cost of capital.
Depreciation
- The reduction in the capital stock that occurs over time because of aging and use. 2. The fall in the value of a currency relative to other currencies in the market for foreign exchange.
Real cost of capital
The cost of capital adjusted for the overall price level.
Net investment
The amount of investment after the replacement of depreciated capital; the change in the capital stock.
Corporate income tax
The tax levied on the accounting profit of corporations.
Investment tax credit
A provision of the corporate income tax that reduces a firm’s tax when it buys new capital goods.
Stock
- A variable measured as a quantity at a point in time. 2. Shares of onership in a corporation.
Stock market
A market in which shares of ownership in corporations are bought and sold.
Tobin’s q
The ratio of the market value of installed capital to its replacement cost.
Efficient markets hypothesis
The theory that asset prices reflect all publicly available information about the value of an asset.
Financing constraints
A limit on the quantity oof funds a firm can raise - such as through borrowing - in order to buy capital.
Production smoothing
The motive for holding inventories according to which a firm can reduce its costs by keeping the amount of output it produces steady and allowing ist stock of inventories to respond to fluctuating sales.
