RENT, PROFIT AND INTEREST

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RENT, PROFIT AND INTEREST

• UNIT 6

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I. RENT

• ECONOMIC RENT- LAND AND OTHER RESOURCES WHICH ARE
  FIXED
• RENT IS A SURPLUS PAYMENT- EXISTS WHETHER
  UTILIZED/PAID FOR OR NOT.

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• TO A FIRM, RENTAL PAYMENTS ARE A COST

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SOCIALIST VIEW

• LAND IS A GIFT OF NATURE, COSTS NOTHING TO
  PRODUCE, AND EXISTS EVEN IF THERE IS NO DEMAND
  FOR IT
• LAND RENTS ARE UNEARNED INCOMES- GOVERNMENT
  SHOULD CONTROL- COMMUNIST POV

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• SINGLE TAX MOVEMENT AND HENRY GEORGE, PROGRESS
  AND AND POVERTY (1879)
• TAX LAND ONLY BECAUSE IT DOESNT AFFECT
  PRODUCTION OR OUTPUT.
• ARGUMENT OF EQUITY AND EFFICIENCY.

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INTEREST

• INTEREST- MONEY PAID FOR THE LOANING OF MONEY
  EXPRESSED AS A PERCENTAGE
• MONEY IS NOT A RESOURCE- MONEY USED TO BUY
  FACTORS OF PRODUCTION ONLY COUNTED IN THE TERM,
  CAPITAL

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LOANABLE FUNDS THEORY

• SUPPLY OF AND DEMAND FOR MONEY
• SUPPLY OF MONEY- DIRECT RELATIONSHIP
• DEMAND FOR MONEY- INVERSE RELATIONSHIP

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EXERCISES

• GRAPH THE EFFECT IF HOUSEHOLDS HAVE LESS TO PUT
  INTO THE BANK EACH MONTH DUE TO RISING INFLATION.
• GRAPH THE EFFECT IF MORE PEOPLE NEED TO BUY
  WASHER/DRYER UNITS ON TIME RATHER THAN PAY ALL AT
  THE TIME OF PURCHASE

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TABLE 29.1, P. 548

• MOST RECENT DATA
• 30 yr fixed mtg 5.82 6.08
• 15 yr fixed mtg 5.17 5.55
• 6 mo CD 3.07
• 1 yr CD 3.11
• 5 yr CD 3.38 www.bankrate.com

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RANGE OF INTEREST RATES

• RISK(RISKIER HIGHER RATE)
• MATURITY(LONGER HIGHER RATE)
• LOAN SIZE (BIGGER LOWER RATE)
• TAXABILITY(LOW RATE AND TAX EXEMPT HIGHER
  RETURN)
• Amt. made relative to amt. invested

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NOMINAL VS REAL INTEREST RATE

• NOMINAL- IN CURRENT DOLLARS VALUE
• REAL INTEREST RATE- PURCHASING POWER OF DOLLAR
• FORMULA IS NOMINAL INTEREST RATE () RATE OF
  INFLATION() REAL INTEREST RATE

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PROFIT- TYPES

• PURE OR ECONOMIC- TR- TC (IMPLICIT AND EXPLICT)
• ENTREPRENEURS RECEIVE PROFIT TAKING RISKS IN THE
  STARTING UP OF A BUSINESS VENTURE.
• PROFITS FROM MONOPOLY POWER

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FUNCTION OF PROFITS AND LOSSES

• ALLOCATION OF RESOURCES IN ACCORD WITH CONSUMER
  PREFERENCES (WANTS)