Problem 2 The economy expected future marginal product of capital is MPK =90-0,05K,+1 The current capital stock is 1650

[answerhappygod]

Problem 2 The Economy Expected Future Marginal Product Of Capital Is Mpk 90 0 05k 1 The Current Capital Stock Is 1650 1 (34.19 KiB) Viewed 35 times

Problem 2 The Economy Expected Future Marginal Product Of Capital Is Mpk 90 0 05k 1 The Current Capital Stock Is 1650 2 (25.16 KiB) Viewed 35 times

Problem 2 The Economy Expected Future Marginal Product Of Capital Is Mpk 90 0 05k 1 The Current Capital Stock Is 1650 3 (25.16 KiB) Viewed 35 times

Problem 2 The Economy Expected Future Marginal Product Of Capital Is Mpk 90 0 05k 1 The Current Capital Stock Is 1650 4 (25.16 KiB) Viewed 35 times

Problem 2 The economy expected future marginal product of capital is MPK =90-0,05K,+1 The current capital stock is 1650 units, capital depreciates at the rate of 20% per period. The price of capital equipment equals the general price level. Inflation is equal to zero. Firms pay taxes equal to 50% of their output. a) Nominal interest rate is 5% per period. Assume that there are no investment adjustment costs and calculate the level of desired gross investment. b) Redo (a) assuming that all prices in the economy are expected to increase by 5%. Despite the fact that inflation is expected, the nominal interest rate remains unchanged.

4 Log of fixed investment rate (% GDP) 2 .1 0 5 .3 Bİ Institutional quality 0 1.5 2 Log of institutional quality (1-6) c) The graph on the left displays investment to GDP ratio in 129 countries between 1980 and 2010 against the quality of institutions (contract enforcement and property rights). Explain whether the neoclassical investment model predicts the positive relationship showed in the graph.

4 Log of fixed investment rate (% GDP) 2 .1 0 5 .3 Bİ Institutional quality 0 1.5 2 Log of institutional quality (1-6) c) The graph on the left displays investment to GDP ratio in 129 countries between 1980 and 2010 against the quality of institutions (contract enforcement and property rights). Explain whether the neoclassical investment model predicts the positive relationship showed in the graph.