This problem also uses the example in Table 16-1 (p. 521), except where noted. The flexible accelerator

Question:

This problem also uses the example in Table 16-1 (p. 521), except where noted. The flexible accelerator model states that net investment In, equals a fraction, f, of the gap between the desired capital stock K*, and last period€™s capital stock k€“1 , The capital stock in any period equals last period€™s capital stock plus last period€™s net investment. The equations that describe these relationships are
In = f(K* - K-1) and K = K-1 + In-1.
Table 16-1 Workings of the Accelerator Hypothesis of Investment for the Hypothetical Mammoth Electric Company

(a) Assume that f equals 0.5. Calculate the amounts of the capital stock, net investment, and gross investment in periods 1€“5.
(b) Using the example in Table 16-1 and your answer to part a, discuss how net and gross investments differ between the simple and flexible accelerator models.