Explain how these individual investment decisions

Reference no: EM133261076

For these first two questions, use the Shock, Response, New Equilibrium framework (both a graph and some narrative) to structure your answers

Question 1) At the end of the 1990s, firms became more pessimistic about the future returns of internet-related infrastructure (servers, routers, etc) after disappointing results on these projects earlier in the decade. This pessimism lasted several years.

a) Use the Internal Rate of Return rule/table to explain how this pessimism about project returns would change an individual firm's decision about buying new internet related capital. Borrowing costs didn't change... at least, not yet.

b) Explain how these individual investment decisions will add up to change long-term interest rates and the aggregate level of investment spending in the economy. Be sure to tell the full story: shock, response, new equilibrium.

Reference no: EM133261076

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