Calculate the desired capital stock, Macroeconomics

Assignment Help:

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?

 


Related Discussions:- Calculate the desired capital stock

How central bank increases the target rate, How central bank increases the ...

How central bank increases the target rate Let's say that the central bank increases the target rate. When the target rate increases, the central bank needs to raise the overni

Additional marginal opportunity costs of our choices, We have been looking ...

We have been looking at just the Additional Marginal Opportunity Costs of our choices. What about the total cost? For example, we see and hear ads all the time about different cell

Fixed versus floating exchange rates, Fixed versus floating exchange rates:...

Fixed versus floating exchange rates: To begin with, we will briefly review the balance of payments (BOP) table of a nation that you studied in the course on international eco

Equilibrium income, Equilibrium Income  The next step is to use the agg...

Equilibrium Income  The next step is to use the aggregate demand function, AD, to determine the equilibrium level of income and output. This is done in figure . Recall that the

Relation between nominal interest rate and inflation, Relation between nomi...

Relation between nominal interest rate, real interest rate and inflation If we denote the nominal interest rate by R, the real rate by r and the expected inflation by p e then

Advantage and disadvantage of reducing dependence, What are the pros and co...

What are the pros and cons of reducing dependence on outsourcing in order to fulfill social obligations toward stakeholders?

Resulting market distortion, Consider a market for fish whose market demand...

Consider a market for fish whose market demand and market supply for fish are specified as Qd = 300 - 2.5 P and Qs = - 20 + 1.5 P respectively. The government decides to impose a p

Federal communications commission, A few years ago, the Federal Communicati...

A few years ago, the Federal Communications Commission (FCC) eliminated a rule that required Baby Bells to provide rivals access and discounted rates to current broadband facilitie

The multiplier analysis , THE MULTIPLIER ANALYSIS  Multiplier analysis ...

THE MULTIPLIER ANALYSIS  Multiplier analysis explains what happens to circular flow of economic life when the behavior of one of the sectors or the components of aggregate dema

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd