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
If the U.S. government were willing to convert dollars into gold at a fixed price, then dollars would be a. fiat money. b. commodity money. c. bank money. d. both fiat and

Consider two bonds. Each has a face value of $100 and matures in one year. One has a zero coupon payment, and the other pays $10 per year. A. Explain how the two bonds differ

An increase in growth rates will cause the production possibilities curve to a. shift inward. b. become steeper. c. become flatter. d. shift outward.

Design a hypothetical ideal randomized controlled experiment to study the effects of hours spent studying on performance on microeconomics exams. Suggest some impediments to implem

Suppose that the market labor supply and labor demand equations are given by Qs = 5W and Qd = 30 - 5W. If a minimum wage is set at $4.00 (W = 4), then how all step by step.

Tennis-Warehouse recently conducted a study of long distance phone calls made by its employees. The study showed that the length of the calls has a mean of 3.2 minutes, a standard

Q. Define the Real wage? Consider the following scenario. You work full time and during January 2008 you make 2000 euro after tax. A certain basket of goods and services costs

At first, it may seem obvious that consumption will rely on Y. If GDP is doubled in real terms over a number of years, government consumption, private consumption and investment wi

Give your own example of "pseudoreplication" (sensu Hurlbert 1984) in an experiment. How does pseudoreplication cause problems for correct inferences from experiments?

Listed here are several examples of bad, or at least questionable, decisions. Evaluate the decision maker's approach or logic. In which of the six decision steps might the decision