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Unformatted text preview: (a) Consumers become more future-oriented, and thus decide to save more (b) Government decides to cut tax (c) The country loses much of its capital stock to a war 4. Consider a firm that faces the following expected future marginal product of capital: 1000 2 f MPK K =-, where f MPK is the expected future marginal product of capital and K is the capital stock. The price of capital p K is 1000, the real interest rate r is 10%, and the depreciation rate d is 15%. (a) What is the user cost of capital? (b) What is the firms desired capital stock? (c) Now suppose that the firm must pay a 50% tax on its revenue. What is the desired capital stock as a result of this tax?...
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- Spring '07
- J Liu