Q: Suppose the costs of adjustment exhibit constant returns in κ and κ
Suppose the costs of adjustment exhibit constant returns in κ and κ. Specifically, suppose they are given by C(κ/κ)κ, where C(0) = 0, C(0) = 0, C(•) > 0. In addition, suppose capital depreciates at ra...
See AnswerQ: Suppose that π(K)=a −bK and C(
Suppose that π(K)=a −bK and C(I)= αI 2/2. (a) What is the q =0 locus? What is the long-run equilibrium value of K? (b) What is the slope of the saddle path? (Hint: Use the approach in Section 2.6.)
See AnswerQ: Consider the model of investment under uncertainty with a constant interest rate
Consider the model of investment under uncertainty with a constant interest rate in Section 9.7. Suppose that, as in Problem 9.10, π(K) = a −bK and that C(I) = αI 2/2. In addition, suppose that what i...
See AnswerQ: Consider the model of investment with kinked adjustment costs in Section 9
Consider the model of investment with kinked adjustment costs in Section 9.8. Describe the effect of each of the following on the q =0 locus, on the area where K = 0, on q and K at the time of the cha...
See AnswerQ: Consider a firm that is contemplating undertaking an investment with a cost
Consider a firm that is contemplating undertaking an investment with a cost of I. There are two periods. The investment will pay off π1 inperiod1and π2 inperiod2. π1 is certain, but π2 is uncertain. T...
See AnswerQ: Describe how each of the following affects steady-state employment in
Describe how each of the following affects steady-state employment in the Diamond Mortensen Pissarides model of Section 11.4: (a) An increase in the job breakup rate, λ. (b) An increase in the interes...
See AnswerQ: Consider the analysis of the effects of uncertainty about discount factors in
Consider the analysis of the effects of uncertainty about discount factors in Section 9.7. Suppose, however, that the firm finances its investment using a mix of equity and risk-free debt. Specificall...
See AnswerQ: Corporations in the United States are allowed to subtract depreciation allowances from
Corporations in the United States are allowed to subtract depreciation allowances from their taxable income. The depreciation allowances are based on the purchase price of the capital; a corporation t...
See AnswerQ: The major feature of the tax code that affects the user cost
The major feature of the tax code that affects the user cost of capital in the case of owner-occupied housing in the United States is that nominal interest payments are tax-deductible. Thus the after-...
See AnswerQ: Consider an individual choosing the path of G to maximize∞ t
Consider an individual choosing the path of G to maximize∞ t=0 e−ρt− a 2G(t)2dt, a > 0, ρ>0.Here G(t) is the amount of garbage the individual creates at time t; for simplicity, we allow for the possib...
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