ECN 104 Study Guide - Capital Expenditure, Quill

• School: Ryerson University
• Department: Economics
• Course: ECN 104
• Professor: Halis Yildiz

Document Summary

Capital expenditure we learned that increasing capital, both human and physical, is the only way to create productivity growth in the long run. One way to directly increase the amount of capital in an economy, also called the capital stock, is by increasing the spending on capital. In order to understand how increasing the spending on capital works, it is necessary to understand how money is spent on capital. In order for most firms to increase their capital stock, they must purchase additional machinery, tools, and education for their employees. Because firms do not often have the large sums of cash necessary for these types of purchases readily available, they must go to banks to get funding for their capital expenditures. Remember that when banks make loans, they are simply matching up savers and borrowers. Thus, the amount of savings by individuals directly affects the amount of money available for capital expenditures by firms.