Econ Ch11

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.

Common stock

A share of stock is an ownership claim on a firm, entitling its owner to a profit share.

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).

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 is measured in terms of money, or value, as a stock value at a point in time. When we speak of capital, we refer not to money or to financial assets such as bonds and stocks, but instead to the firm's actual capital stock.

Capital income

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

Interest rate

Interest payments expressed as a percentage of the loan.

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.

intangible capital

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

Dividend

Payment made to shareholders of a corporation.

Expected rate of return

The annual rate of return that a firm expects to obtain through a capital investment. The expected rate of return on an investment project depends on the price of the investment, the expected length of time the project provides additional cost savings or revenue, and the expected amount of revenue attributable each year to the project.

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. Investment by firms is the demand for capital. Saving by households is the supply of capital. Various financial institutions facilitate the transfer of households' savings to firms that use them for capital investment.

Financial capital market

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

Interest

The payments made for the use of money.

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

The present discounted 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 are used as inputs to produce other goods and services in the future.