3. You are given the desired capital stock as: OY rc K*=- where: 0=0.4 Y = RM8 billion rc = 0.15 Based on the information given above: i) Calculate the desired capital stock. ii) iii) Assume output (Y) is expected to increase by RM2 billion. Explain how this increase affect the desired capital stock. Assume that the capital stock is at the desired level before the change in income was expected. Assume also the speed of adjustment (2) is given as 0.4 in the gradual adjustment of investment. Calculate the rate of investment as well as the new capital stock when there is an increase in the expected income.

3. You are given the desired capital stock as: OY rc K*=- where: 0=0.4 Y = RM8 billion rc = 0.15 Based on the information given above: i) Calculate the desired capital stock. ii) iii) Assume output (Y) is expected to increase by RM2 billion. Explain how this increase affect the desired capital stock. Assume that the capital stock is at the desired level before the change in income was expected. Assume also the speed of adjustment (2) is given as 0.4 in the gradual adjustment of investment. Calculate the rate of investment as well as the new capital stock when there is an increase in the expected income.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 9CQ

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