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Can a country invest too much

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1. Can a country invest too much? How might you assess what is too much?

2. Suppose ?rms extrapolate from recent growth in demand to future growth in demand. They invest when capital is insuf?cient to meet projected demand. If current capital exceeds what is required to meet expected demand, investment is cut to zero. How could an econ- omy that worked like this generate investment-led business cycles?

3. Suppose interest rates rise sharply but are expected to fall again in a year or so. How do you think this would affect the level of investment in machines with short lives and those with very long useful lives?

Reference no: EM13887947

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