1. Derive investment equation of Neoclassical. You need to state all related assumptions in your explanation.

2. SETIA JAYA firm produces a consumer product. The output value worth RM200 million are produced using the total capital of RM350 million in the first year. Assumed that the firm is able to fulfill the demand for the first and the second periods. The operation of the firm at desired capasity. The gestation period (j) is three periods and partial adjustment coefficient is 0.6. The demand for the product increases by 5 percent starting from the third period and the percentage is maintained for the following years.

i) What is the gestation period?

ii) Calculate the real capital stock (K), desired capital stock (K*), net investment (Ib) and potential output (Y) until the end of the partial adjustment process.

iii) Determine the end period of partial adjustment process.

iv) Briefly comment on the changes of inventory stock of the firm.