Define the following terms briefly and concisely and indicate their importance to the study of economics.
a. Entrepreneurship
b. Investment
c. Capital
d. Innovation
e. Discounting
What will be an ideal response?
a. Entrepreneurship is the act of starting new firms, introducing new products and technological innovations, and taking the risks that are necessary in seeking out business opportunities. It is essential for the success of a market economy.b. Investment is the flow of resources into the production of new capital goods. The capital stock of the nation cannot grow without net new investment.c. Capital refers to a stock of plant, equipment, and final goods in business inventory. The factor of production, capital, is essential for production of consumer goods and additional capital goods.d. Innovation consists of the act of putting the new idea (or invention) into practical use. It is one possible source of economic profit.e. Discounting is the process of computing the present value of a stream of future monetary payments, given some interest rate. The present value of a payment X at a point n years in the future where the interest rate on funds is r equals: X/(1 + r)n. When the interest rate rises, the present value of the stream of payments decreases.
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One reason the total sum of the income categories does not equal GDP is that
A) taxes are generally larger than subsidies and the depreciation of capital is negligible. B) GDP values goods and services at retail prices and the income approach values them at wholesale cost. C) people do not spend all their income, so the value of consumption expenditure is less than the value of wages. D) GDP does not include depreciation, which is part of the income categories. E) GDP values goods and services at market prices and the income approach values them at factor cost.
If Chris pays $500 for a bond that will return $750 in one year, what is the interest rate?
a. 50 percent b. 10 percent c. 25 percent d. 250 percent e. 33 percent
Assuming no cash leakages and no excess reserves held by banks, a required reserve ratio of 0 percent would mean that the simple deposit multiplier is
A) 0. B) 1. C) 10. D) 100. E) infinity.
A year-long drought that destroys most of the summer's crops would be considered a:
A. short-run supply shock. B. long-run demand shock. C. long-run supply shock. D. short-run demand shock.