Assume that the marginal product of capital is given by the following expression: MPK = 60/K^0.7 (K is measured in trillions). a) Graph the demand
Assume that the marginal product of capital is given by the following expression: MPK = 60/K^0.7 (K is measured in trillions).
a) Graph the demand curve for capital and find the equilibrium real rental rate of capital if capital supply is ten trillion. State your calculations clearly.
b) Suppose a positive supply shock hits the economy, and now MPK = 70/ K^0.7. Draw the new demand curve and calculate the new equilibrium real rental rate of capital. State your calculations clearly.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a To graph the demand curve for capital we need to express the marginal product of capital MPK as a ...
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Step: 2
Step: 3
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Authors: Glenn Hubbard, Anthony Patrick O'Brien, Matthew P Rafferty
1st Edition
978-0132109994, 0132109999
