Interest

Definition of capital, capital value

Method of calculating the capital value ( discounting )

Annuity, perpetuity

Effect of an increase in interest rate on the value of long - lived asset relative to short - lived asset

Investment decision rule

- Cost benefit analysis : investment takes place as long as MB of investment � MC of investment

                    - MEC � interest rate

                    - Return rate � interest rate

                    - Present value is maximized

MEI is less elastic than MEC ( because of the increase in capital price )

Definition of wealth

Definition of interest

- A price for earlier availability

- A reward for delayed consumption

- Standard income from the productivity of capital

Interest is the whole of income

Differences between wealth and capital

Comparison among different maximization postulates

Determinants of real interest rate