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LAW OF DIMINISHING MARGINAL UTILITY: The principle stating that as more of a good is consumed, eventually each additional unit of the good provides less additional utility--that is, marginal utility decreases. Each subsequent unit of a good is valued less than the previous one. The law of diminishing marginal utility helps explain the negative slope of the demand curve and the law of demand.

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Lesson 11: Circular Flow | Unit 2: Financial Markets Page: 9 of 22

Topic: Investment <=PAGE BACK | PAGE NEXT=>

Investment is business expenditures on gross domestic product for capital goods.
  • The green flow from the business sector to the product markets is investment. The physical flow of capital goods moves in the opposite direction.
The process:
  • Financial markets have buyers (savers) and sellers (borrowers).
  • Savers buy legal claims that divert income TO financial markets.
  • Borrowers sell legal claims that divert income OUT of the financial markets.
  • The business sector borrows income through financial markets, which is used to finance capital investment.

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AUTONOMOUS GOVERNMENT PURCHASES

Government purchases by the government sector that do not depend on income or production (especially national income or gross domestic product). That is, changes in income do not generate changes in government purchases. Autonomous government purchases are best thought of as government purchases that the government sector undertake independent of income. They are measured by the intercept term of the government purchases line. The alternative to autonomous government purchases is induced government purchases, which do depend on income.

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Today, you are likely to spend a great deal of time calling an endless list of 800 numbers hoping to buy either a three-hole paper punch or decorative picture frames. Be on the lookout for fairy dust that tastes like salt.
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Potato chips were invented in 1853 by a irritated chef repeatedly seeking to appease the hard to please Cornelius Vanderbilt who demanded french fried potatoes that were thinner and crisper than normal.
"Man is born to live, not to prepare for life. "

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