4. Use the diagram for the neoclassical theory of investment spending. Is it possible, with a specific exogenous change, for the future capital stock to increase if the real interest rate also increases? Explain.
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- If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to teal GDP?3. Use the neoclassical theory of investment to analyze using the model and the graphs how these events might affect the cost of capital, price of capital and investment to (use graphs and theory) a) Higher inflation b) A decrease in the level of employment c) An increase in the corporate income tax d) A deterioration of the part of capital stock in a natural disaster.3. Other things being constant, what will be the effect of each of the following on consumption and saving schedules? (a) Concern grows over rising prices. (b) Real interest rates fall. How will the following situations affect the investment demand curve? (a) Unplanned inventories rise to new highs. O A firm decides to increase its current inventory levels.
- 2. What would be the impact of changing the determinant variables given in the first column (below) on investment? Factors affecting Investment Effect on Investment decrease in interest rate Increase in interest rate Increase in prices of capital goods There is no technology available in the country Demand for consumer goods decrease Government decided to increase corporation tax Increase in SubsidiesGive typing answer with explanation and conclusion Which of the following statements concerning consumption is incorrect? A. WEALTHY PEOPLE CONSUME MORE THAN OTHER PEOPLE. B. EXPECTATIONS ABOUT FUTURE PRICES AFFECT CONSUMPTION. C. MARGINAL PROPENSITY TO CONSUME USUALLY DECREASES AS INCOMES RISE. D. SAVINGS RATES DECREASE AS INCOME INCREASES. E. TAX INCREASES REDUCE CONSUMPTION.3. The neoclassical theory of the firm suggests that firms produce outputs by combining inputs that were produced in a market from other individuals and firms. They do this because some other firm will have a comparative advantage in producing the input they use. Yet, firms produce some of their own inputs. Explain Ronald Coase's theory for why firms do this.
- 1.8. Suppose that investment as a fraction of output in the United States rises permanently from 0.15 to 0.18. Assume that capital's share is 3. (a) By about how much does output eventually rise relative to what it would have been without the rise in investment? (b) By about how much does consumption rise relative to what it would have been without the rise in investment? (c) What is the immediate effect of the rise in investment on consumption? About how long does it take for consumption to return to what it would have been without the rise in investment?7, How will planned investment spending change as the following events occur? a. The interest rate falls as a result of Federal Reserve policy. b. The U.S. Environmental Protection Agency decrees that corporations must upgrade or replace their machinery in order to reduce their emissions of sul- fur dioxide. c. Baby boomers begin to retire in large numbers and reduce their savings, resulting in higher interest rates.c. What is meant by "autonomous consumption"? d. Explain the consumption puzzle? e. How does the Life-Cycle Hypothesis resolve the puzzle?
- 1. Account for what motivates rental firm’s investment decisions? 2. With the use of the neoclassical model of investment, elaborate on what would happen to the rental price of capital, the cost of capital, and investment if a hurricane destroys some portion of the capital stock.5. Consider the basic neoclassical model. Graphically analyze the effects of: (a) An increase in Gt+1 b) An increase in A t+1 c) A permanent increase in productivity In each case, describe clearly how each endogenous variable changes.Smoothing consumption and income are motivations for several actions that individuals take- saving, borrowing, lending, investment... it is also an optimal individual choice to overcome the impacts of unemployment and recession. Write an essay on the role, importance and methods of consumption (and income) smoothing in the study of macroeconomics. You may use figures, diagrams and tables to suppprt your answer.