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Unformatted text preview: 1 61 Consumption, Saving, and Investment, Part 2 62 Agenda Investment Goods Market Equilibrium 63 Investment From the desired capital stock to investment: The capital stock changes from 2 sources. Gross investment , which adds to the capital stock. Depreciation , which reduces the capital stock. Gross investment = net investment + depreciation. 64 Investment From the desired capital stock to investment: Net investment = gross investment depreciation: K t +1 K t = I t dK t where net investment = the change in the capital stock. 2 65 Gross and net investment, 19292005 66 Investment From the desired capital stock to investment: Rewrite K t +1 K t = I t dK t as I t = K t+1 K t + dK t 67 Investment From the desired capital stock to investment: If firms can change their capital stocks in one period, then: K* = K t+1 where K* is the desired capital stock. Then I t = K* K t + dK t 68 Investment From the desired capital stock to investment: Now investment has two parts: I t = K* K t + dK t K* K t , the desired net increase in the capital stock over the year, and dK t , the investment needed to replace depreciated capital. 3 69 Investment From the desired capital stock to investment: Lags and investment. Some capital can be constructed easily, but other capital may take years to put in place. So investment needed to reach the desired capital stock may be spread out over several years. 610 Investment Investment in inventories and housing: The marginal product of capital and user cost of capital also apply to housing and inventories as well as to equipment and structures....
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This note was uploaded on 09/27/2009 for the course ECON 100 taught by Professor Staff during the Spring '08 term at University of California, Berkeley.
 Spring '08
 Staff
 Market Equilibrium

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