Calculate the desired capital stock, Macroeconomics

Suppose that the desired capital stock is given as:

K* = 0.3Y/ir

Where Y = GDP, and ir is the real interest rate.  Suppose further that Y = $5 trillion and that

ir  = 0.12 (12 percent).

a.  Calculate the desired capital stock, K*.

b.  Now suppose that Y rises to $6 trillion.  What is the corresponding (or new) desired capital stock?

c.  Suppose that the actual capital stock (K) was equal to the desired capital stock (K*) before the increase in income from $5 trillion to $6 trillion.  Assume that a gradual adjustment process of actual to desired capital occurs, such that λ = 0.4.  What will the level of investment be in the first year after the change in income?  What will investment be in the second year after the change in income?

 

Posted Date: 2/21/2013 8:15:27 AM | Location : United States







Related Discussions:- Calculate the desired capital stock, Assignment Help, Ask Question on Calculate the desired capital stock, Get Answer, Expert's Help, Calculate the desired capital stock Discussions

Write discussion on Calculate the desired capital stock
Your posts are moderated
Related Questions
Monetarism This school argues that disturbances within the monetary sector are the principal causes of instability in the economy. According to monetarists, the money supply i

Suppose that in the United States a car can be produced with 200 labor hours, while a ton of rice requires 20 labor hours. In Japan, it takes 150 labor hours to make a car and 50 l

Use the laws of supply and demand to explain why the cost to heat our homes and businesses goes up in the winter time. Be sure to explain your answer fully. At least two paragraphs

Q. Explain about Price Inflation? The major reason for allowing for non-constant wages in the model is that we then can allow for persistent deflation/inflation. With constant

full overview as-ad model

Financial Development A well developed financial system is very essential for the smooth functioning of any economy. One set of important statistical indicators that is used to

using the marginal utility theory explain the consumption patten of consumers

Cowboy Corporation is estimating its WACC.  The firm's debt structure contains: (1) 30,100 long-term bonds with an 8.1% coupon, paid semiannually, a 10 years-to-maturity, and a $10

Define the Natural rate of unemployment Natural rate of unemployment is defined as the sum of rates of structural, frictional, and classical unemployment (excluding cyclical un

why does the price level not enter desire consumption, investment and net exports of the desired aggregate expenditure function in the keynesian cross model