Suppose a country has a Cobb-Douglas production function as Y= A K0.3 N0.7, Y= $5 trillion, and rental cost of the capital rc=12%
Calculate the desired capital stock K*.
Now suppose that Y is expected to rise to $6 trillion. What is the corresponding desired capital stock
Suppose that the capital stock was at the desired level before the change in income was expected. Suppose further that ?=0.4 in the gradual adjustment model of investment. What will the rate of investment be in the first year after expected income changes? In the second year?
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Jan 30, 2021EXPERT
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