ECO 304L Lecture Notes - Lecture 1: Investment Goods

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Production possibility: useful in thinking how an economy can grow. Circular flow: use to think about how major markets and sectors interact in the economy. Shows how money flows through markets among households and firms. No money flowing in and out of country. Assume all income spent on goods and services (no saving) Intermediate goods: used by firms to produce other goods and are immediately used up in production process. Investment goods: used by firms to produce other goods but last multiple periods of time. Only final goods or services are purchased by households. Goods market: final goods and services are bought and sold. Factor markets: services of factors of production are compensated. Stock: measures quantities that can be measured at a point in time. Capital stock: value of capital at a point in time. Flow: measures quantities measured over a period of time.

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