Capital markets and interest rates

Interest, as well as wages, is a form of factor incomes. Owner factor capital receives his income as a percentage.

Capital, as we know, can be defined as the value that generates revenue streams. Under the capital market of production factors mean physical capital, using which you can increase in the future income stream (machines, buildings). Capital is in demand because it is productive. The subject of the demand for capital is business, and entrepreneurs. The subjects of the supply of capital - the household.

Demand for capital - is the demand for investment funds, and not just for money. When we talk about the demand for capital, as a factor of production, we are referring to the demand for investment funds required for the acquisition of capital in its physical form (machinery and equipment). Demand for capital can be represented graphically (Figure 16).

As the investment funds offered reduced product of capital. The same thing happens with the growth of labor hire and reduction of the product of labor.

Supply of capital. Population offers business machines, equipment in their physical expression. Housekeeping offers investment funds, ie amount of money that a business uses to acquire productive assets (Figure 17). Why the supply curve is has a positive slope?

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