Economic Terms

When capital is purchased to increase productive capacity.

A key aspect is that the cost of purchasing capital is considered expenditure and is part of Aggregate Demand. However, the purpose of purchasing additional capital is to increase productive capacity which will influence Aggregate Supply i.e. outward LRAS shift. Distinguishing these two outcomes using AD/AS analysis is a minimum requirement for success at Economics A-level.

The increase in expenditure has an immediate impact (as soon as the capital is purchased) while changes in productive capacity will take longer to emerge (as it takes time to integrate capital into the productive process the impact on output also takes time to emerge).

 

 

A financial institution that assists individuals, corporations, and governments in raising financial capital by underwriting or acting as the client's agent in the issuance of securities.

A good that is purchased if there is an expectation it will increase in value over time e.g. classic car, antiques, commodities.

A good that is purchased if there is an expectation it will increase in value over time e.g. classic car, antiques, commodities.

Income generated by the investments owned by individuals and firms. The income is a reward that is paid for the use of the capital

Trade in services and other intangible financial items.

Is the famous English economist associated with Keynesian economics. The General Theory of Employment, Interest and Money (1936) is his most famous work.

A good which is purchased alongside another good as the combined outcome helps to satisfy a want or desire.

Below is a set of diagrams to illustrate joint demand in a demand and supply framework. In this instance an increase in demand for printers, similtaneously raises the demand for ink cartridges. This is because no individual can use a printer without accompanying ink cartridges so there has to be a joint demand for this product. The same intuition holds for razors and razor blades.

When a good is supplied as result of the supply of another good, typically because a number of goods can be produced from the same raw materials/process or if remnants from the production process can be used to produce something else.

Below is a set of diagrams to illustrate joint supply in a demand and supply framework. In this instance an increase in demand for beef, raises the price of beef and as a result increases the supply if beef due to higher profit incentives. If more beef is produced then this should increase the supply of leather as leather is produced from beef. Therefore beef and leather are in joint supply.

 

Keynesian economists believe that supply is the same in the short and long term and that there is no need for a separate SRAS curve. The Keynesian supply curve is perfectly elastic at low levels of real output and transitions to a perfectly inelastic curve as real output approaches the full employment level.

The diagram below illustrates the Keynesian view of the aggregate supply curve. Unlike the classical view, the keynesian view suggests that the supply curve is not always inelastic at every point i.e. there is a point in the economy when spare capacity exists and firms can increase production (elastic part of curve). But there is also a point in which full capacity is reached and therefore production cannot be changed (inelastic part of curve). This logic is summarised in the table next to the graph.