econ/chapter 11

human capital

A form of intangible capital that includes the skills and other knowledge that workers have or acquire through education and training and that yields valuable services to a firm over time.

social capital, or infrastructure

Capital that provides services to the public. Most social capital takes the form of public works (roads and bridges) and public services (police and fire protection).

interest rate

interest payments expressed as a percentage of the loan

intangible capital

nonmaterial things that contribute to the output of future goods and services.

expected rate of return

the annual rate of return that a firm expects to obtain through a capital investment.

depreciation

the decline in an asset's economic value over time

capital market

the market in which households supply their savings to firms that demand funds to buy capital goods.

interest

the payments made for the use of money

bond

A contract between a borrower and a lender, in which the borrower agrees to pay the loan at some time in the future, along with interest payments along the way.

capital stock

For a single firm, the current market value of the firm's plant, equipment, inventories, and intangible assets.

capital income

Income earned on savings that have been put to use through financial capital markets.

physical, or tangible, capital

Material things used as inputs in the production of future goods and services. The major categories of physical capital are nonresidential structures, durable equipment, residential structures, and inventories.

investment

New capital additions to a firm's capital stock. Although capital is measured at a given point in time (a stock), investment is measured over a period of time (a flow). The flow of investment increases the capital stock

financial capital market

The part of the capital market in which savers and investors interact through intermediaries.

present discounted value (PDV), or present value (PV)

The present discounting value of R dollars to be paid t years in the future is the amount you need to pay today, at current interest rates, to ensure that you end up with R dollars t years from now. It is the current market value of receiving R dollars in t years. PV=R/(1+r)^t

capital

Those goods produced by the economic system that re used as inputs to produce other goods and services in the future