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
Which of the following would indicate the beginnings of an expansion of the economy? a. Fewer new firms are started. b. Stock market prices decline c. Consumer confidence improves

construct the supply and demand curves for rental housing, indicating equilibrium rent and quantity. Show the effects on this market( i.e., on supply, demand, equilibrium rent and

discus the various measures that may be taken by a firm to counteract the evil effect of a trade cycle

Assume that the economy is characterized by the following structural equations: C = 160 + 0.6 (4 - T) I = 150; G = 150; T = 100. a) Determine the equilibrium output level

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

Which economic system is the best solution to handling a crisis of epic proportion?


Analyze the ways in which managers could use the Federal Register to determine the single most significant challenge associated with its use, and how managers could address that ch

The resource based model identifies four criteria that firms can use to evaluate whether particular resources and capabilities are core competencies and can therefore, provide a ba

NATIONAL INCOME STATISTICS