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| Question | Answer |
| Physical Capital | Is the tools, instruments, machines building and other constructions that have been produced in the past and that are used to produce goods and services |
| Financial Capital | Is the funds that firms use to buy and operate physical capital. |
| So what increases capital and what decreases it | Investment increases capital while depreciation lowers it |
| Gross Investment | Is the total amount spent on new capital goods (ALL OF IT) |
| Net Investment | Is the change in quantity of capital = Gross Capital - Depreciation |
| What is the difference between Gross Investment and Net Investment | Gross Investment is the total you put into the company but Net Investment is how much of the gross investment is kept because depreciation takes away from your gross investment |
| Wealth | The value of all the things a person owns |
| Saving | Is the amount of income that is not paid in taxes or spent on consumption goods and services; and adds to wealth |
| Wealth increases when market value of assets rise. What is this called | Capital Gains |
| Savings is the source of funds that are used to finance investment and these funds are supplied and demanded by what types of markets | 1. Loan Markets 2. Bonds Markets 3. Stock Markets |
| Loan Markets | The market where households and businesses go get credit and money and borrow it to fund there things and pay back with interest |
| Bond Markets | The markets for bonds; or a promise to make a specified payment at a specified time. The market is the bonds that are being sold by gov or firms and being bought and resold by firms and households |
| Stock Markets | A certificate of ownership and entitles you to a share of the profit. It can be sold at a deficit or a profit and are sold at the stock market in exchanges like NYSE or the Frankfurt SE and the Tokyo SE |
| Financial Institutions | Is a firm that operates on both sides of the markets for financial capital; it borrows in one market and lends in another |
| What are key financial institutions | 1. Investment Banking 2. Commercial Banking 3. Pension Funds 4. Insurance Companies 5.Government Sponsored Mortgage Lenders |
| Investment Banks ( Key Financial Institution) | They are firms that help other financial institutions and governments to issue stocks and bonds and also provide advice for mergers and acquisitions. (High Risk) |
| Commercial Banking (Key Financial Institution) | The bank that households use for their own banking services. EX. Home Loans, Credit Cards, etc. (Low Risk) |
| Pension Funds (Key Financial Institutions) | Financial Institutions buy stocks and bonds to make money and give retirement funds (Retirement Funds) |
| Insurance Companies (Key Financial Institutions) | Insurance for accident that will happen in the future |
| Net Worth | How much a company is worth and is calculated by the Market Value of the company - The market value of the money borrowed |
| Insolvency | Negative Net Worth. Happens when the Market Value of what they have borrowed exceeds what they can pay back |
| Illiquidity | When a company is solvent but doesn't have the funds to pay back loans or financial obligations |
| What are stocks, bonds and loans | They are financial assets |
| On a financial asset what is a percentage of the price of the asset | Interest rates |
| If the asset price rises with other things remaining the same what happens ? | The interest rate falls |
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