Suppose that the economywide expected future marginal product of capital is: MPK = 20 -0.02K where K is the future capital stock. The depreciation rate of capital, d, is 10% per period. The current capital stock ko is 800 units of capital. The price of a unit of capital is 1 unit of output. Firms pay taxes equal to 15% of their output. The consumption function in the economy is: cd = 100+ 0.5Y - 200r, where C is consumption, Y is output, and r is the real interest rate. Government purchases equal 220, and full-employment output is 1,000. a. Suppose that the real interest rate is 10% per period. What is the value of the tax-adjusted user cost of capital? uc = units (round your answer to two decimal places) What is the value of the desired future capital stock? K = units (round your answer to the nearest whole number) What is the value of the desired level of investment? (= units (round your answer to the nearest whole number) b. Now consider the real interest rate determined by goods market equilibrium (note that the real interest is no longer 10%, as it was in part a). The equation for desired investment can be written as "=-Ko+(dx Ko). The desired future capital stock depends on the 20 - (1 - tax) 0.02 where tax is the tax rate firms pay on output. Use these two equations to derive an equation for desired investment: after-tax user cost of capital and the equation for the expected future marginal product of capital, so that K = 19-0-0 (round each coefficient to one decimal place) Use the goods-market clearing condition to calculate the real interest rate that clears the goods market. r=% (round your answer in percent to one decimal place) What are the goods market-clearing values of consumption, saving, and investment? C = (round your answer to the nearest whole number) S=(round your answer to the nearest whole number) 1 = (round your answer to the nearest whole number) Suppose that the economywide expected future marginal product of capital is: MPK = 20 -0.02K where K is the future capital stock. The depreciation rate of capital, d, is 10% per period. The current capital stock ko is 800 units of capital. The price of a unit of capital is 1 unit of output. Firms pay taxes equal to 15% of their output. The consumption function in the economy is: cd = 100+ 0.5Y - 200r, where C is consumption, Y is output, and r is the real interest rate. Government purchases equal 220, and full-employment output is 1,000. a. Suppose that the real interest rate is 10% per period. What is the value of the tax-adjusted user cost of capital? uc = units (round your answer to two decimal places) What is the value of the desired future capital stock? K = units (round your answer to the nearest whole number) What is the value of the desired level of investment? (= units (round your answer to the nearest whole number) b. Now consider the real interest rate determined by goods market equilibrium (note that the real interest is no longer 10%, as it was in part a). The equation for desired investment can be written as "=-Ko+(dx Ko). The desired future capital stock depends on the 20 - (1 - tax) 0.02 where tax is the tax rate firms pay on output. Use these two equations to derive an equation for desired investment: after-tax user cost of capital and the equation for the expected future marginal product of capital, so that K = 19-0-0 (round each coefficient to one decimal place) Use the goods-market clearing condition to calculate the real interest rate that clears the goods market. r=% (round your answer in percent to one decimal place) What are the goods market-clearing values of consumption, saving, and investment? C = (round your answer to the nearest whole number) S=(round your answer to the nearest whole number) 1 = (round your answer to the nearest whole number)
