Economics: Types of Capital Savings

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Questions and Answers

What is an example of direct capital savings in use?

A couple investing their savings in a home

What is a characteristic of capital?

It is mobile, sensitive to its environment and scarce

What is country risk evaluation used for?

To guide the decision on where capital will flow

What is an example of indirect capital savings?

Purchasing stocks or bonds Signup and view all the answers

What is analyzed as part of country risk evaluation?

The political environment, economic trends, fiscal policy, and monetary policy Signup and view all the answers

What is fiscal policy concerned with?

The level of taxes and government spending Signup and view all the answers

What is the goal of monetary policy?

To promote price and foreign exchange stability Signup and view all the answers

Why is capital extremely selective?

Because it is mobile, sensitive to its environment and scarce Signup and view all the answers

What is the primary source of investment capital in Canada?

Institutional investors and foreign investors Signup and view all the answers

What type of investors typically trade large volumes of securities?

Institutional investors Signup and view all the answers

What is the primary use of capital by individuals?

Financing housing, consumer durables, or other types of consumption Signup and view all the answers

What industries have historically received significant foreign direct investment in Canada?

Manufacturing, petroleum and natural gas, and mining and smelting Signup and view all the answers

What is a characteristic of retail investors?

They are individual investors who buy and sell securities for their own personal accounts Signup and view all the answers

What are the three main categories of users of capital?

Individuals, businesses, and governments Signup and view all the answers

What is a characteristic of institutional investors?

They are organizations that trade large volumes of securities and typically have a steady flow of money to invest Signup and view all the answers

What is the significance of foreign investors in Canada?

They are a significant source of investment capital and have historically contributed to Canada's growth Signup and view all the answers

What is the primary reason capital moves in or out of countries or localities?

Anticipation of changes in taxation, exchange policy, and regulations Signup and view all the answers

What is the primary source of capital?

Savings Signup and view all the answers

Why do corporations retain earnings in their businesses?

For internal use by the corporation Signup and view all the answers

What is the characteristic of labor that affects investment opportunities?

Productivity Signup and view all the answers

Why do governments operate at a surplus?

To invest their surpluses Signup and view all the answers

What is the primary motivation for individuals to save?

To consume in the future Signup and view all the answers

What is the primary factor that influences capital allocation?

Return on investment Signup and view all the answers

Why do non-residents invest in Canada?

Because Canada is a good place to invest Signup and view all the answers

Study Notes

Capital Savings

Can be used directly by individuals, governments, or companies to invest in tangible assets like homes, highways, or plants
Can also be invested indirectly through purchasing securities like stocks, bonds, or mutual funds
Indirect investment allows savers to buy securities issued by governments and corporations, which in turn use the funds for direct investment

Characteristics of Capital

Mobile: can move freely between countries and locations
Sensitive to its environment: affected by factors like government stability, economic activity, and investment opportunities
Scarce: in high demand worldwide, making it selective in where it is invested

Country Risk Evaluation

Analyzes factors that affect capital flow, including:
- Political environment: risk of internal or external conflict
- Economic trends: growth, inflation, and economic activity
- Fiscal policy: tax levels, government spending, and savings incentives
- Monetary policy: management of money supply and price stability
- Investment opportunities: risk and return on investment
- Labour force: skill and productivity levels

Sources of Capital

Only source of capital is savings
Savers include:
- Non-financial corporations: generate savings through earnings, mainly for internal use
- Individuals: may save and invest for future consumption
- Governments: surplus funds can be invested, while deficits require borrowing
- Non-residents: foreign corporations and individuals investing in Canada

Users of Capital

Individuals: use capital to finance consumption, housing, and consumer durables
Businesses: use capital for direct investment, expansion, and growth
Governments: use capital for infrastructure development, public services, and investments