PLEASE DO TRY TO ANSWER BOTH PARTS, PART B THE ANSWER IS GIVEN, BYT I STRUGGLED TO UNDERSTAND., PLEASE perform YOUR BEST, THANKS!

Suppose the capital intensity of production (?) is 0.3, the mark-up is 20%, the depreciation rate is 6% and the real interest rate is 4%.

(a) Use the equation for the desired capital stock in the short run [jQuery22408981730014173142_1611795916374?(? + ?) ? = ?] to calculate the desired capital stock relative to production (you may assume a Cobb-Douglas production function if you like).

(b) Suppose that there is an increase in demand of 3%. Calculate the increase in the desired capital stock as a percent of production.

The desired capital stock will increase 3 percent because firms want a capital stock in proportion to production. This investment corresponds to 7.5 percent of GDP.