Macroeconomics - Chapter 7: Finance, Saving, and Investment

Flashcards covering key vocabulary terms and concepts from Chapter 7 of the Macroeconomics lecture, focusing on finance, saving, and investment.

Financial Markets

Places where financial assets, such as stocks and bonds, are bought and sold.

Physical Capital

The tools, machines, buildings, and other items produced in the past used to produce goods and services.

Financial Capital

The funds that firms use to buy physical capital.

Gross Investment

The total amount spent on the purchase of new capital and on replacing depreciated capital.

Net Investment

The change in the quantity of capital, calculated as gross investment minus depreciation.

Wealth

The total value of all assets owned by a person or entity.

Saving

The amount of income not spent on consumption of goods and services.

Capital Gains

Increases in the market value of assets.

Capital Losses

Decreases in the market value of assets.

Loan Markets

Financial markets where loans are made between borrowers and lenders.

Bond Markets

Markets where bonds are issued and traded.

Stock Markets

Markets for buying and selling stocks.

Financial Institution

A firm that operates as both a borrower and a lender in financial markets.

Interest Rate

The percentage of a loan that is paid as interest over a certain period.

Nominal Interest Rate

The stated interest rate without adjustment for inflation.

Real Interest Rate

The interest rate adjusted for the effects of inflation.

Demand for Loanable Funds

The relationship between the quantity of loanable funds demanded and the real interest rate.

Supply of Loanable Funds

The relationship between the quantity of loanable funds supplied and the real interest rate.

Equilibrium in the Loanable Funds Market

The situation in which the quantity of loanable funds demanded equals the quantity supplied.

Real GDP

measures the value of goods and services produced in the economy adjusted for inflation it reflects actual output, not price changes, allowing for a more accurate comparison of economic performance over time.