desired future capital stock

Discussion in 'Business & Economics' started by squid, Mar 17, 2004.

  1. squid Registered Senior Member

    Messages:
    56
    help:

    expected future marginal product of capital is MPKf = 20 -0.02K, where K is the future capital stock.

    depreciation is .2 or d =.2

    current capital stock is 900 or Kt = 900

    taxes is .5 or t = .5

    consumption function is C = 100 + .5Y - 200r or Cd = C = 100 + .5Y - 200r

    output is 1000 or Y 1000

    government purchases is 200 or G =200

    real interest rate is .1 or r =.1

    user cost of capital:

    uc = (r + d)/1 - t = (.1 + .2)/.5 = .6

    desired future capital stock:

    20 - .02Kdt+1(the "d" is on top right of K and the "t+1" is on the bottom right of K) = .6 and Kdt+1 = 970 (the "d" is on top right of K and the "t+1" is on the bottom right of K)

    desired level of investment:

    Kdt+1(the "d" is on top right of K and the "t+1" is on the bottom right of K) - Kt + dKt = 970 - 900 + 180 = 250

    My question is how was the 970 from the desired future capital stock determined?

    Thanks
     

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