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Capital goods

Capital goods. chapter 4, Science of Economics. Roundabout production. indirect production, which rather than producing a consumer good, first produces capital goods that then increase the productivity of making the consumer goods. The period of production. the payback time:

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Capital goods

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  1. Capital goods chapter 4, Science of Economics

  2. Roundabout production • indirect production, which rather than producing a consumer good, first produces capital goods that then increase the productivity of making the consumer goods.

  3. The period of production • the payback time: • the duration between an investment and the time that the cost plus profit are recovered. • Roundaboutness increases the period of production

  4. The time structure of capital goods. • Like a stack of pancakes. • Bottom: quick period of production. • Up the stack, longer period of production, higher-order capital goods. • Lower interest rates steepen the stack. • Higher savings reduce the rate of interest and steepen the stack.

  5. Expansion of money • Money expansion acts like more savings. • Lower interest rate, more investment, • but concentrated in higher-order goods. • When the money creation stops, • interest rates rise, and the higher-order investment stops. • Malinvestments - not profitable.

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