Macroeconomics Investment and Saving Quiz

Spending on new capital assets that will be used for future production, such as buildings, equipment, and software.

The amount of capital stock used up over time due to wear and tear or obsolescence.

The additional output produced by using one more unit of capital.

The amount of income that is not spent on consumption.

The ratio of saving to income.

Refers to the purchase of financial assets such as stocks or bonds. It is NOT the same as investment spending.

The interest rate charged by banks to borrowers for short-term loans (usually less than a year).

The interest rate charged by banks to borrowers for long-term loans (usually more than a year).

The value of an investment today, considering the time value of money.

The process of comparing the present values of costs and benefits to make an investment decision.

Adjusting cash flows to reflect their value at a common point in time, usually the present.

The rate of return used to discount future cash flows to their present value.

A calculation that considers the present value of future cash flows and the cost of the investment to determine if it's worthwhile.

The interest rate that makes the present value of future cash flows equal to the initial investment.

A method of evaluating investment projects by comparing the present value of future cash flows to the initial investment cost.

Next year's revenue must be greater than the cost of capital (interest rate plus depreciation).

The total amount of income that is not spent, including both private and government savings.

The value of a country's exports minus its imports of goods and services.

The value of financial capital flowing out of a country minus the value of financial capital flowing into the country.

The relationship between the quantity of loanable funds demanded by borrowers and the real interest rate.

The relationship between the quantity of loanable funds supplied by lenders and the real interest rate.

The point where the demand for loanable funds equals the supply of loanable funds.

An increase in the real interest rate leads to a decrease in investment spending, as borrowing becomes more expensive.

Factors that shift the demand curve for loanable funds, such as technological advances, expectations, corporate taxes, and lending standards.

Factors that shift the supply curve for loanable funds, such as changes in private savings behavior, government budget balance, and global shocks.

The annual decrease in revenue, represented by the 'd' variable. It's the rate at which revenue declines each year. Think of it as a 'decay' factor.

The total amount of revenue generated over all future years, calculated by multiplying the initial revenue by (1-d) for each subsequent year. It represents the total income stream from the asset.

The value of future revenue discounted to the present. This is the real worth of future income taking into account the time value of money.

The interest rate used to discount future cash flows to their present value. It reflects the opportunity cost of holding money over time.

The year in the analysis for which the revenue is being calculated. It progresses as the analysis moves into future years.

The formula used to calculate the present value of revenue in a given year. It factors in the discount rate and the time period.

A calculation that looks forward to see the present value of earnings from investing in an asset, taking into account how revenue changes over time and the cost of waiting for those earnings.

The time until the asset's revenue stream stops, effectively extending the analysis to infinity.

The result of summing up the present value of revenue for every year until infinity. It reflects the total present value of the asset's infinite stream of earnings.

The concept that money received today is worth more than money received in the future. This is due to the potential to invest the money and earn interest over time.

The process of converting future revenues into a present value by using the discount rate to reflect the cost of waiting for those revenues.

The revenue generated in a specific year. The initial year's revenue is the starting point for the analysis.

The process of using a depreciation rate to calculate the revenue stream over time. It reflects the declining value of an asset over its lifetime. Think of it as the 'decay' pattern of revenue.

The concept of assuming an infinite revenue stream from the asset to analyze its total, ultimate worth. This allows for a comprehensive analysis of the asset's value.

The assumption used in the analysis that the depreciation rate (d) and discount rate (r) remain constant over the entire infinite timeframe. This simplifies the analysis and allows for easier calculations.

In an open economy, the world interest rate determines the equilibrium level of investment and saving.

The world interest rate determines the equilibrium level of investment and saving when there's free movement of capital between countries.

When the world interest rate is lower than the domestic equilibrium interest rate, there's net outflow of capital, leading to negative net foreign investment income (NFIA) and positive net factor income from abroad (NFIB).

Net foreign investment income (NFIA) represents income earned from foreign investments, while net factor income from abroad (NFIB) captures income earned by foreign residents in the domestic economy.

The real interest rate is the rate of return on an investment adjusted for inflation, reflecting the actual purchasing power of the return.

The nominal interest rate is the stated interest rate on a loan or investment, without considering inflation.

The neutral real interest rate represents the long-run equilibrium real interest rate that supports stable economic growth and low inflation.

In the short-run, monetary policy can influence the real interest rate by adjusting the nominal interest rate.