Tutorial_6_-_Investment - What effect will the levy have on...

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1 Tutorial 6 – Investment 1. Use the neoclassical model of investment to explain the impact of each of the following on the rental price of capital, the cost of capital and investment: (a) anti-inflationary monetary policy raises the real interest rate. (b) a hurricane destroys part of the capital stock. (c) immigration of foreign workers increases the size of the labour force. 2. Suppose that there is a one-time environmental levy on all used and reconditioned cars imported into the island, which is some proportion of the value of cars imported over the last year.
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Unformatted text preview: What effect will the levy have on business fixed investment by these car dealerships? What if they face financing constraints? 3. Use the model of residential investment to show the impact of: i. a decrease in the demand for housing. ii. an increase in the demand for housing. 4. What would be the impact on the economy (investment, output, aggregate demand) this year if the prime minister announces that after World Cup 2007, he will reduce corporate income taxes? 5. Discuss Tobin’s q ....
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