Add Question HereMultiple Choice1 pointsQuestionSuppose it is an election year and the economy is in a recession. The opposition candidate proposes an investmenttax credit to take effect next year after he takes office. If the public believes the opposition candidate has a goodchance of winning, the effect of this promise will likely be to:Answerincrease investment both this year and next year.decrease investment both this year and next year.increase investment this year and decrease it next year.decrease investment this year and increase it next year.

Add Question HereEssay1 pointsQuestionAssume that a car-rental company buys cars for $20,000 each and rents them out to other businesses. The companyfaces a nominal interest rate of 10 percent per year, and car prices are rising at 6 percent per year. If cars depreciate at30 percent per year, what will be the company's cost of capital per car?

Add Question HereEssay1 pointsQuestionAssume that the production function for an economy is given by Y= AKaHbL1– a – b, where His the stock of inventories.Then the marginal product of inventories (MPH) is given by MPH= bAKaL1 – a – bHb – 1. If the stock of inventories doesnot depreciate, the price of inventories is the same as the price of output, and taxes are ignored, then the real “cost ofcapital” for inventories is just the interest rate ra.Derive an expression for the “desired equilibrium stock of inventories” (H*) as a function of rand outputYby equating the cost of capital to MPH. (Hint:First substitute the production function into theexpression for MPHto get MPH= bY/H.) If r= 0.1, b= 0.05, and Y= 5,000, what is the desired stock ofinventories?b.If rrose to 0.12, how would the desired stock of inventories change?.Answer

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Add Question HereEssay1 pointsQuestionAssume that the following model of the economy applies:C= a+ b(Y– Ifixed= c+ Iinventories= g+ Y= C+ Ifixed+ IinventoriesWrite an expression for equilibrium Yin this model. If b= 0.5, d= 0.2, and h= 0.2, what are the multipliers for Gand T)dYhY+ GT?

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Add Question HereEssay1 pointsQuestionUse the neoclassical model of business fixed investment to illustrate graphically how a plague that kills a largeproportion of the labor force would change the rental price of capital. If other factors remained unchanged, how wouldthis change the quantity of investment in the economy?