A sector's net worth can be overstated because
a. foreign debts are not reported.
b. historical values are reported.
c. changes in money holdings are not reported.
d. the value of total assets increases over time.
b. historical values are reported.
balance sheet:
an accounting format that describes the activities of a firm in financial terms
economic sectors:
the different groups that participate in the economy
financial assets:
that part of the national balance sheet that shows bank deposits, loans to various enterprises, and the public debt
financial flow accounts:
reports how funds are used nationally in borrowing and lending activities
flow measures:
measure flow of funds activity over time
flow of funds:
changes in asset and liability holdings during a given period
income statement:
the statement that shows the difference between generated revenues and expenses incurred during a given period for an economic sector
national balance sheet accounts:
set of balance sheets prepared for each group in the economy and for the economy as a whole
net worth (net wealth):
total assets less total liabilities
nonfinancial assets:
physical holdings of a sector, such as land or machinery
stock measures:
measure flow of funds activity at a particular moment in time
System of National Accounts:
set of definitions that describe aggregate economic activity in Canada
capital ratio:
some measure of a firm's capital, such as shareholders' equity, divided by the assets of a firm
diminishing marginal returns:
a description for the principle that increases in input, other inputs held fixed, produce successively smaller increases in output
leverage:
the activity of investing with borrowed funds
leverage ratio:
a measure of the debts of a firm divided by shareholders' equity
Modigliani-Miller (MM) theorem:
the theory stating that, under specific conditions, a firm will be indifferent between borrowing via bonds versus equity
production possibilities:
the opportunities available to a firm, with a given set of labour and capital, to produce today versus in the future
spread:
the difference between borrowing and lending rates; also the difference between long-term and short-term interest rates
Tobin's q:
the market value of a firm's capital provided by the replacement cost of a firm's capital
