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Econ 4.3
Wednesday, January 20, 1999
Announcements: Complete
#1, 3, 5 from Chapter 2. The problem set is due on Friday 1/22.
Pick a seat that will be your permanent seat.
Lecture notes:
Operation of Financial
Markets
- Real Investment:
Something that has been produced in the economy which can
be used in the future to produce additional goods and
services
- Ownership of stock in
corporations is not what investment means in
macroeconomic terms
- Investment is what a
company does
- Savings accounts and
stock in the stock markets are financial assetts
- Real Capital:
Accumulation of investments made in the past. It is
accumulated stock of goods and services that are used to
create goods and services in the future.
- Some of investment is
to replace things wearing out
- Doesn't increase,
just maintains
- Gross Investment: total
value of new things produced
- Net Investment: What
you have that increases the capital after you have used
the investment to maintain what you have
- Financial Investment:
trading used assetts; a financial investment has
no direct effect on the US economy
Define the following
words:
- Initial Public
Offering (IPO)
- Bond: a type
of financial instrument that firms issue in exchange for
cash
- Stock
- Investment Banker
- Secondary Market
- Dividends
- Bond Interest
Payments
- Bad Prices and
Interest Rate (show how related)
- Governments
(financial sense)
- Munis: municipal
information system
- Stock Exchange
- Over-the-Counter
Market
Production Possibility
Frontier (cont'd)
- Any point on the graph curve
is efficient
- What is the most economically
efficient point?
- Lumber (cord of wood) = 4 ft
x 4 ft x 8 ft
- 942 1lb books
- 2000 lbs of paper
- 61,370 #10 envelopes
- 7,500,000 toothpicks
- Opportunity Cost (measured in
toothpicks) = 7,500,000 toothpicks / 942 books = 7,961
toothpicks/books
- In an industry where output
rises and productivity and value increases people expect
higher salaries
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