inventory and capital consumption). Despite the steep decline in quarterly net profit in 2008, profits have

recovered and surpassed pre-recession levels.

FIGURE 17.2 Corporate Profits After Tax (Adjusted for Inventory and Capital Consumption) Prior to 2008, corporate

profits after tax more often than not increased each year. There was a significant drop in profits during 2008 and into

2009. The profit trend has since continued to increase each year, though at a less steady or consistent rate. (Source:

Federal Reserve Economic Data (FRED) https://research.stlouisfed.org/fred2/series/CPATAX)

Many firms, from huge companies like General Motors to startup firms writing computer software, do not have
the financial resources within the firm to make all the desired investments. These firms need financial capital

from outside investors, and they are willing to pay interest for the opportunity to obtain a rate of return on the

investment of that financial capital.
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