Assume that the marginal product of capital is given by the following expression: MPK = 60/K^0.7 (K
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Question:
Assume that the marginal product of capital is given by the following expression: MPK = 60/K^0.7 (K is measured in trillions).
a) Graph the demand curve for capital and find the equilibrium real rental rate of capital if capital supply is ten trillion. State your calculations clearly.
b) Suppose a positive supply shock hits the economy, and now MPK = 70/ K^0.7. Draw the new demand curve and calculate the new equilibrium real rental rate of capital. State your calculations clearly.
Related Book For
Macroeconomics
ISBN: 9780132109994
1st Edition
Authors: Glenn Hubbard, Anthony Patrick O'Brien, Matthew P Rafferty
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