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Y2 Fundamental Macroeconomics > Investment > Flashcards

Investment Flashcards

1
Q

What is Future value in terms of present value?

A

PV (1+i)^n

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2
Q

How do we calculate PV from FV?

A

FV / (1+i)^n

Or FV * 1/(1+i)^n

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3
Q

Discounting is the opposite of

A

saving

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4
Q

What is MPK?

A

Marginal productivity of Capital

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5
Q

What is business fixed investment?

A

Investment in products that will produce goods and services

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6
Q

What are production firms?

A

Rent the capital they use to produce goods and services

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7
Q

What are rental firms?

A

Own capital, rent it to production firms

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8
Q

How do we get MPK?

A

R/P

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9
Q

What are the components of the cost of capital?

A
  • Interest cost
  • Depreciation costs
  • Capital loss
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10
Q

What is interest cost?

A

i x Pk (Pk = nominal price of capital)

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11
Q

What is depreciation cost?

A

δ x Pk (δ = rate of depreciation)

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12
Q

What is Capital loss?

A

-ΔPk

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13
Q

What is n, in terms of investment functions?

A

number of years over which compounding takes place

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14
Q

What is the equation for Tobin’s q?

A

Market value of installed capital
/
Replacement cost of installed capital

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15
Q

In Tobin’s q, if q>1:

A

Firms buy more capital to raise the market value of their firms

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16
Q

If Tobin’s q<1:

A

Firms do not replace capital as it wears out

17
Q

A wave of pessimism about future profitability of capital would:

A
  • Cause stock prices to fall
  • Cause Tobin’s q to fall
  • Shift the investment function down
  • Cause a negative aggregate demand shock
18
Q

A fall in stock prices would:

A
  • Reduce household wealth
  • Shift the consumption function down
  • Cause a negative aggregate demand shock
19
Q

What are financing constraints?

A

Limits on the amounts firms can borrow (or otherwise raise in financial markets)

20
Q

In Ph/P, Ph stands for:

A

Price of housing

21
Q

In Ph/P, P stands for

A

Price of other goods

22
Q

What are incentives for holding inventories?

A
  • Production smoothing
  • Inventories as a factor of production
  • Stock out avoidance
  • Work in process

Y2 Fundamental Macroeconomics (20 decks)

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