section+25 - ECON 101B: Section 25 Handout Date: 04/20/2011...

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ECON 101B: Section 25 Handout Date: 04/20/2011 Question 1 oil reserves. (The government assures the ±rms that the tax is for one time only.) According to the neoclassical model, what e/ect will the tax have on business ±xed investment by these ±rms? What if Question 2 1. Consider a harvester that costs $10,000. If harvester prices are rising at 3 percent per year, the nominal interest rate is 6 percent, and harvesters depreciate by 20 percent per year, calculate the cost of capital on this investment. 2. Now consider a computer that costs $10,000. Once again, assume that the nominal interest rate is 6 percent and computers depreciate by 20 percent per year. Computer prices, however, fall by 15 percent per year. Calculate the cost of capital on this investment. Question 3
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section+25 - ECON 101B: Section 25 Handout Date: 04/20/2011...

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