In an economy, the future marginal product of capital is MPKf=100-K, where K denotes the future capital stock. The price of capital is 100, the depreciation rate of capital is 0.1 and the current capital stock is 10. An equation relating desired investment (I) to real interest rate (r) is
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In an economy, the future marginal product of capital is MPKf=100-K, where K denotes the future capital stock. The price of capital is 100, the depreciation rate of capital is 0.1 and the current capital stock is 10. An equation relating desired investment (I) to real interest rate (r) is
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- A rise in the interest rate would cause a (Click to select) v on the Demand of Loanable Funds (Investment function).The negative relationship between the demand for investment goods and the real interest rate is determined by the fact that more investment reduces the future depreciation. more investment reduces the marginal product of future capital. more investment increases the total supply for current goods. more investment increases the total demand for current goods. None of the other answers is correct.Problem 1A According to the new classical investment model we have: MPK = (r + 8) (1) Derive the above equation and explain it briefly. Suppose that a firm has a production function of Y = AKOSL 05 i. i. where Y is output, A is productivity (or technology), K is capital and L is labour. When A = 2, K = 100 and L = 400. Obtain the marginal product of сapital (MPK). Consider a production function that Y = AK?L?, where A = 0.1, L= 1, Pk =1, P = 1, r= 0.1, and 8=0.1. What is the optimal level of capital, K*, in the steady state? ii.
- compute the marginal product of capital (MPK) and the marginal product of capital (MPL) of a. Q=3 K0.4+4 L0.3compute the marginal product of capital (MPK) and the marginal product of capital (MPL) of b. Q=K2/ 5L3 /51.2 Severe weather hit the North Island of New Zealand in late January 2023, followed by Cyclone Gabrielle in February 2023, which caused large-scale flooding and damage. These weather events destroyed a significant part of the capital stock at time t. Assume future labour supply is not affected by the disaster and there are no adjustment costs (i.e., additional costs required to convert goods into investments beyond the value of the investment). You are required to write an analytical note for the government on the economic impacts of these events (hint: your answers should be guided by formal economic concepts but you should take care to explain your reasoning to be accessible to a general public sector audience). Make sure your note addresses the following two questions. 1 1. What are the impacts on short-run interest rates and aggregate investment? 2. What are the long-term effects?
- If Y = C+I, saving, S, is defined as S=Y-C and C=cY, what is the ratio of saving to income, S/Y a. 1+c b. 1-c c. c d. 1/(1-c)What would be the value of income if consumption is $600 and APC is 0.77This question is about private consumption. Consider a household that lives for two periods. In period j, the price level is P; and the real labour income is given by w; for j = {1,2}. The initial real wealth is 2 - 1. The household has given by A. The nominal interest rate is i and the inflation rate (CPI) is 7 = a constant relative risk aversion (CRRA) utility function which reads P1 1 1 - - u (С1,С2) %3D и(С1) + Bu(C2) — u(С1) + Вu(С2) +B 1 – 0 1 – 0 where 0 > 0, BE (0,1) is the subjective discount factor of the household and C; is consumption in period j for j = {1,2}.' Now consider the consumption choice of the household. (1.1) Firstly, demonstrate how we can obtain the lifetime budget constraint of the household consist- ing of nominal interest rate, price levels, real labour income, initial real wealth, and consump- tion. Secondly, transform the budget constraint you have just obtained into another budget con- straint consisting of the real interest rate, real labour income,…
- WHat is the NPV of this investment ?Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.75% at a time when inflation is around 1.65%. For the average saver, the real rate of interest on his or her savings is .......???%. (Round your response to two decimal places and use a minus sign if necessary.) If banks expect that the rate of inflation in the coming year will be 4.65% and they want a real return of 7.5% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is .......???%. (Round your response to two decimal places.) If the economy experiences an unexpectedly low rate of inflation, the group that would tend to benefit is ___________. A. debtors (people or businesses who owe money). B. creditors (people or institutions that are owed money). C. both would benefit equally. D. neither benefits.The importance of income in determining savings has persisted since the time of Keynes. Why have other theories failed to displace income as the most critical variable in saving theory?
