Search for:. Defining Capital In economics, capital references non-financial assets used in the production of goods and services. Learning Objectives Define and explain capital.
Key Takeaways Key Points Fundamentally, capital is any product that is produced and has the ability to enhance the power of an individual to perform economically useful work. Features that determine whether a good is capital include: 1 the good can be used in the production of other goods this makes it a factor of production , 2 the good is not used up immediately in the process of production, unlike intermediate goods or raw materials, and 3 the good was produced.
Types of capital include: physical, financial, natural, social, instructional, and human. Key Terms capital : Already-produced durable goods available for use as a factor of production, such as steam shovels equipment and office buildings structures. Interest Rates and Economic Rationale Economic rationale, the reasons or thought processes that impact economic decisions, is influenced substantially by the interest rate. Learning Objectives Define and explain the relationship between interest rates and economic rationale.
Key Takeaways Key Points The interest rate is the rate at which interest is paid by a borrower debtor for the use of money borrowed from a lender creditor.
When interest rates decrease, investment and spending increase. When interest rates increase, investments decrease which causes the national income to fall.
Key Terms interest rate : The percentage of an amount of money charged for its use per some period of time often a year. Licenses and Attributions. Because inflation isn't supposed to occur in a weak economy, stagflation is an unnatural situation. Slow growth prevents inflation in a normal The laissez-faire economic theory centers on the restriction of government intervention in the economy.
According to laissez-faire economics, the economy is at its strongest when the government protects individuals' rights but otherwise doesn't intervene. What Is Adverse Selection? A low-interest-rate environment is intended to stimulate economic growth so that it is cheaper to borrow money. This is beneficial for those who are shopping for new homes, simply because it lowers their monthly payment and means cheaper costs. When the Federal Reserve lowers rates, it means more money in consumers' pockets, to spend in other areas , and more large purchases of items, such as houses.
Banks also benefit in this environment because they can lend more money. However, low-interest rates aren't always ideal. A high-interest rate typically tells us that the economy is strong and doing well. In a low-interest-rate environment, there are lower returns on investments and in savings accounts, and of course, an increase in debt which could mean more of a chance of default when rates go back up. There are a variety of interest rates, which include rates for auto loans and credit cards.
As of November , the average auto rate for a five-year loan for a new car was 4. The average credit card interest rates vary according to many factors such as the type of credit card travel rewards, cashback or business, etc. On average, the interest rate for credit cards as of November was Your credit score has the most impact on the interest rate you are offered when it comes to various loans and lines of credit.
Credit cards in this area also carry more fees along with the higher interest rates and are used to build or repair bad or no credit.
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