help:
expected future marginal product of capital is MPKf = 20 -0.02K, where K is the future capital stock.
depreciation is .2 or d =.2
current capital stock is 900 or Kt = 900
taxes is .5 or t = .5
consumption function is C = 100 + .5Y - 200r or Cd = C = 100 + .5Y - 200r
output is 1000 or Y 1000
government purchases is 200 or G =200
real interest rate is .1 or r =.1
user cost of capital:
uc = (r + d)/1 - t = (.1 + .2)/.5 = .6
desired future capital stock:
20 - .02Kdt+1(the "d" is on top right of K and the "t+1" is on the bottom right of K) = .6 and Kdt+1 = 970 (the "d" is on top right of K and the "t+1" is on the bottom right of K)
desired level of investment:
Kdt+1(the "d" is on top right of K and the "t+1" is on the bottom right of K) - Kt + dKt = 970 - 900 + 180 = 250
My question is how was the 970 from the desired future capital stock determined?
Thanks
expected future marginal product of capital is MPKf = 20 -0.02K, where K is the future capital stock.
depreciation is .2 or d =.2
current capital stock is 900 or Kt = 900
taxes is .5 or t = .5
consumption function is C = 100 + .5Y - 200r or Cd = C = 100 + .5Y - 200r
output is 1000 or Y 1000
government purchases is 200 or G =200
real interest rate is .1 or r =.1
user cost of capital:
uc = (r + d)/1 - t = (.1 + .2)/.5 = .6
desired future capital stock:
20 - .02Kdt+1(the "d" is on top right of K and the "t+1" is on the bottom right of K) = .6 and Kdt+1 = 970 (the "d" is on top right of K and the "t+1" is on the bottom right of K)
desired level of investment:
Kdt+1(the "d" is on top right of K and the "t+1" is on the bottom right of K) - Kt + dKt = 970 - 900 + 180 = 250
My question is how was the 970 from the desired future capital stock determined?
Thanks
