According to the new classical investment model we have: MPK = Gr + 8) i. Derive the above equation and explain it briefly. Suppose that a firm has a production function of Y= AK®5L 05 ii. 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 capital (MPK). Consider a production function that Y = AK²L?, where A = 0.1, L= 1, Px =1, P= 1,r=0.1, and 8=0.1. What is the optimal level of capital, K*, in the steady i11. state?
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- Assume that a national restaurant chain called BBQ builds 20 new restaurants at a cost of $1 million per restaurant. It outfits each restaurant with an additional $400,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 400,000 shares of stock at $40 per share. a. What is the amount of economic investment that has resulted from BBQ’s actions? $_________ million b. How much purely financial investment took place? $__________ millionThe following equations describe an economy: C= 10 + 0.5 Y (Consumption function) I = 190-20i (Investment function) Derive the equations for IS curve and represent it graphically for i=2 and i=5The firm you work for wants you to provide some insight into the investment environment in Mexico before deciding to enter the market. You conduct some research and find a large dispersion of MRPK across firms in Mexico. You also notice that state-owned firms have lower MRPK. Which of the following observations can you make? (there can be more than 1) Firms in Mexico have a hard time expanding due to constraints on the labor market Private firms are at an advantage in Mexico as they face lower capital costs than those owned by the state Resources are likely misallocated because capital is not flowing from firms with low MRPK to firms with high MRPK Your firm may find it more costly to borrow than its state-owned competitors
- Consider a competitive, closed economy with a Cobb-Douglas production function with parameter α = 0.25. The parameter A is equal to 60. Assume also that capital is 100, labor is 100. Assume that in this economy consumption (C) is given by the equation C = 600 + 0.6(Y – T). Investment (I) is given by the equation I = 2,000 – 100r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500. (Hint: use the GDP obtained in part a). What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving?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) isWhat principle would be relevant to the understanding of variation of factors of investment in the SR and LR?
- The Bureau of economic analysis announced today that gross domestic product, the widest measure economic activity, grew in a meager 0.9% annualized rate in the third quarter compared to the first six months of 2018 the US economy in the first 3 quarters of 2019 grew just 1.6%, a pronounced slow down relative to the 3.9% growth in the second half of 2018. Some of this slowdown can be explained by a negative contribution from inventory investment, which contracted 0.9% in the third quarter. There’s plenty to worry about in this report, as it showed us Retail sales Fell for the first time in seven months in September, although overall consumer spending which comprises about 66% of the US GDP activity was up 0 .4%. Capacity utilization also decreased 0.4% in the third quarter to 74.5%.1. Write a phrase from the article that speaks to change in household consumption in the third quarter in 2019. 2. From the information in this article, did household consumption increase or decrease in the…Suppose that firms produce according to the production function Y = AK1/2L1/2, where A = 5 andL = 400. Assume that the prices of capital and output are equal and that the real interest rate, r, isequal to 0.25 and the depreciation rate, δ, is equal to 0.1.1. If firms operate according to the neoclassical theory of investment, what is the optimal levelof capital stock, K (YP) to rich (YR).22. Suppose that the government offers an investment tax credit which changes the relative priceof capital. This results in Pk = 3 and P = 6. What is the new optimal level of capital stock,K??3. Does the investment tax credit have an expansionary impact on the economy? Explain whyor why not.4. Based on the optimal capital stock computed in part (2), what is the level of investmentneeded to sustain this level of capital stock?a. List all the equilibrium conditions of this model and Using the equilibrium conditions listed, write down an expression that describes the evolution of the aggregate capital stock, Kt over time. Briefly explain why this expression is not particularly convenient for our analysis of the model? b.Using your answer to the above question, derive the equation that describes the evo- lution of the the capital stock per effective unit of worker, kt. ' Why is the analysis in terms of the variables per effective unit of worker more useful than the one with the aggregate capital stock? c. Assume that a E (0, 1). Draw a diagram that describes the evolution of kt, and show that there exists a unique steady state, k* > 0. Label properly. Find the expressions for the steady state variables k*, y*, and c* in terms of the parameters of the model. , Now, assume that α = 1. Draw a diagram that describes the evolution of kt, and show that income per worker can grow indefinitely in this case. Label…
- Assume that a national restaurant firm called BBQ builds 10 new restaurants at a cost of $ 1 million per restaurant. It outfits each restaurant with an additional $ 200,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 200,000 shares of stock at $ 30 per share. A) What is the amount of economic investment that has resulted from BBBQ's actions? ( in millions) B)How much purely financial investment took place?The production function is Cobb-Douglas: Y = AK^αL^1−α, where K = 1000, and L = 100. α=0,365 A=2,3 a) How much output does the economy produce?b) What is the real wage rate equal to in equilibrium? c) What is the real rental rate of capital equal to in equilibrium?Explain the short-run and long-run effects of an exogenous decrease in investment by explanation and using graphical analysis.