Input Demand -- Capital Market

A loan that involves more risk will generally charge _____ interest rate than a loan with less risk. Higher or Lower?

A higher

Consider the following interest rates for October 2010. The prime interest rate is 3.25 percent. The corporate bond rate is 4.66 percent​ (projected for​ November), and the interest rate on​ 10-year U.S. government bonds is 2.61 percent. Indicate some of the reasons these three rates are different.​ (Check all that apply.​) A. The federal government is considered a safe borrower and pays low interest rates. B. Interest rates differ because of the risk associated with the loan. C. Interest rates differ because of the terms of the loan​ (how long before the loan is​ due). D. The federal government pays low interest rates because of the budget deficit. E. The interest rate on​ 10-year U.S. government bonds is used to determine the other two rates.

A. The federal government is considered a safe borrower and pays low interest rates. B. Interest rates differ because of the risk associated with the loan. C. Interest rates differ because of the terms of the loan​ (how long before the loan is​ due).

How do the saving decisions of households constrain the amount of investment that firms can​ undertake? A. When households decide how much to​ save, it determines the amount of investment that firms can undertake. B. When households decide how much to​ save, it determines which firms will be able to invest in new capital. C. Investment decisions are made primarily by households in modern industrial societies. D. Household saving has no effect on the amount of investment undertaken by firms.

A. When households decide how much to​ save, it determines the amount of investment that firms can undertake.

For a capital asset to​ depreciate, it must be ​________. A. physically worn out due to use B. completely​ non-functional C. technologically​ up-to-date D. worthless

A. physically worn out due to use

Channeling household savings into investment projects where the investment is paid for through internal funds from the investing firm is accomplished through the mechanism called A. retained earnings. B. banks. C. the stock market. D. venture capital funds.

A. retained earnings.

Institutions in which households supply their savings to firms that demand funds to buy capital goods​ are: A. the capital market. B. the output market. C. the labor market. D. the input market.

A. the capital market.

10-year U.S. Treasury​ Bond Definition?

A​ marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years.

Suppose a firm wants to borrow​ $10,000 for a capital investment project and faces an interest rate of 6 percent. What must be true of the rate of return on the project in order for the firm to undertake the​ venture? A. The firm will only borrow the money if the interest rate is equal to the marginal revenue product of labor. B. The firm will borrow the money so long as the expected additional revenue is at least as large as the interest rate. C. The firm will borrow the money so long as the interest rate is greater than the expected additional revenue. D. The firm will borrow the money so long as the expected additional revenue is less than the interest rate.

B. The firm will borrow the money so long as the expected additional revenue is at least as large as the interest rate.

In​ economics, the term investment​ means: A. the part of the capital market in which savers and investors interact through intermediaries. B. new capital additions to a​ firm's capital​ stock, measured over time. C. the purchase of stocks and bonds by individuals as a way of saving for retirement. D. a contract between borrowers and​ lenders, in which the borrower agrees to repay the loan plus interest.

B. new capital additions to a​ firm's capital​ stock, measured over time.

Why is investment so important for an​ economy? A. Capital is used to produce future goods and​ services, thereby deterring valuable productive services over time. B. It is the flow of investment that decreases the capital stock. C. It is the flow of investment that increases the capital stock. D. None of the above.

C. It is the flow of investment that increases the capital stock.

If a firm borrows ​$12,000 from households at an annual interest rate of 9 ​percent, how much will the firm pay in interest payments each​ year? The firm will pay ​$_____ in interest payments each year.

$12,000 x .09 = $1,080

Corporate​ Bonds Definition?

A bond that a corporation issues to raise money in order to expand its business. The term is usually applied to​ longer-term debt​ instruments, generally with a maturity date falling at least a year after their issue date.

Which of the following is an example of how savings can be channeled into productive​ investment? A. Savings can be borrowed from banks or by a firm issuing bonds. B. Savings can be borrowed by​ individuals, who can invest in human capital​ (college education, professional​ school, or technical​ training) or purchase newly constructed houses. C. Savings can be borrowed by​ firms, which can purchase new​ technology, engage in research to develop new​ technology, expand existing​ plants, or build new plants. D. All of the above.

D. All of the above.

The investment demand curve has this slope because firms will only invest in more capital as long​ as: A. the rate of return on that investment is less than the interest rate on loans available with comparable risk. B. the interest rate is low. C. the rate of return is high. D. the rate of return on that investment exceeds the interest rate on loans available with comparable risk.

D. the rate of return on that investment exceeds the interest rate on loans available with comparable risk. Firms will only invest in more capital as long as the rate of return on that investment exceeds the interest rate on loans available with comparable risk.​ Generally, if interest rates​ fall, more projects will be undertaken.

Prime​ Rate Definition?

Defined by the Wall Street Journal​ as: "The base rate on corporate loans posted by at least 75 percent of the​ nation's 30 largest​ banks."

Investment by firms is the _____ ​capital, while savings by households is the _____ capital.

Demand for Supply of

Depreciation definition?

Depreciation is a decline in an assets economic value over time due to use or obsolescence.

The investment Demand Curve is sloping ______?

Downward

The Input Market

Input markets is a market place meeting for buyers (household production) and the sellers (household consumption) in the trade of factors of production (natural resources, labor, capital and entrepreneurship / skill).

The Output Market

Quantity of goods or services produced in a given time period, by a firm, industry, or country", whether consumed or used for further production. The concept of national output is essential in the field of macroeconomics. It is national output that makes a country rich, not large amounts of money.

Capital is a ______ measure and refers to those goods produced by the economic system that are used as inputs to produce other goods and services in the future.

Stock

The Capital Market

The part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments.

The Labor Market

The supply of available workers in relation to available work