Question: PLEASE DO TRY TO ANSWER BOTH PARTS, PART B THE ANSWER IS GIVEN, BYT I STRUGGLED TO UNDERSTAND., PLEASE perform YOUR BEST, THANKS! Q8. Quantifying

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

GIVEN, BYT I STRUGGLED TO UNDERSTAND., PLEASE perform YOUR BEST, THANKS! Q8.

Q8. Quantifying the accelerator effect. Suppose the capital intensity of production (a) 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 [MPK / (1 + u) 8 = r] 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

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