Draw a diagram showing the determination of a firm's optimal capital stock, showing the relationship between the user cost of capital and the future marginal product of capital. Suppose the real interest rate declines. Show what happens to the firm's optimal capital stock. What happens to the firm's desired investment?
What will be an ideal response?
This is the standard diagram with the user cost of capital as a horizontal line and the future marginal product of capital as a downward sloping line. The decline in the real interest rate reduces the user cost of capital, thus increasing the optimal capital stock. With a higher optimal capital stock, desired investment increases.
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In the Keynesian cross model, government spending as a function of national income is a(n): a. horizontal line at a fixed level of expenditure. b. vertical line at a fixed level of real GDP
c. upward-sloping curve. d. downward-sloping curve.
When the money market is drawn with the value of money on the vertical axis, if the value of money is above the equilibrium level,
a. the price level will rise. b. the value of money will rise. c. money demand will shift leftward. d. money demand will shift rightward.
Suppose the own price elasticity of demand for good X is ?0.5, and the price of good X increases by 10 percent. What would you expect to happen to the total expenditures on good X?
A. Increase B. Remain unchanged C. Decrease D. Neither increase, decrease, nor remain unchanged
If price is below the equilibrium, then quantity supplied will be less than quantity demanded putting upward pressure on price.
Answer the following statement true (T) or false (F)