Activity 4 Indicate which of the following statements are correct/incorrect (mark with an X). Statement Correct Incorrect 1. The moment that extra consumption (ce) is greater than current consumption (cc) the 1-period return to capital accumulation is positive. 2. If capital accumulation succeeds in raising Co permanently the perpetual rate of return (r) will be negative. 3. Capital accumulation essentially consists of withholding some output from current consumption, investing this output in some sort of equipment, and using the equipment to produce output in the future. 4. The ratio of the price of consumption today to the price tomorrow is given by 1+ the equilibrium rate of return. 5. In perfectly competitive markets the firm will choose to hire equipment if the MRP>market rental rate. 6. The total costs to the owner of equipment for one period are equal to the price times the sum of the market interest rate and the constant percentage depreciation rate. Activity 5 The following figure shows the equilibrium rate of return when capital stock is employed. Consider the figure and ring the correct answer in the paragraph that follows: At point E the rate at which individuals are willing to trade current consumption for future consumption, is [not equal or equal] to the rate at which they can be technically traded. Point d is [an optimal or a non-optimal] point but individuals can do better by moving towards point E. Tangencies that occur at relatively equal values for current and future consumption will exhibit a [positive or negative] rate of return (r). The rate of return plays the same role in a two sector period model than [absolute or relative] prices do in a model of allocation within a [multiple or single] period