Physical capital is the stock of
produced goods that are inputs
to production of other goods
and services.
Land is the factor of production
that nature supplies.
Together, capital and land are
the tangible wealth of the
economy.
Gross investment is the
production of new capital
goods and/or the improvement
of existing capital goods. Net
investment is gross investment
minus depreciation of the
existing capital stock.
A stock is the quantity of an
asset at point in time. A flow is
the stream of services an asset
provides in a period of time.
The cost of using capital
services is the rental rate for
capital.
The price of an asset is the
sum for which the asset can be
purchased outright. The owner
of a capital asset gets the future
stream of capital services from
this asset.
The present value of a future
£1 is the sum that, if lent today,
would cumulate to £1 by that
date.
The nominal interest rate tells
us how many actual pounds are
earned by lending £1 for a year.
The real interest rate on a loan
shown as the extra quantity of
goods that can be purchased.
Saving is the difference
between current income and
current consumption.
The marginal value product of
capital is the extra value of the
firm’s output when another unit
of capital services is used, all
other inputs being held fixed.
The required rental on capital
just covers the opportunity cost
of owning the asset.
The functional income
distribution is the division of
national income between
different factors of production.
The personal income
distribution is the division of
national income across
individuals, regardless of the
factor services from which
these individuals earn their
income.
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