This problem uses the Tobin q model of investment. Suppose that the adjustment rate, j, equals 0.2 and that the depreciation rate equals 0.1. The replacement value of the AB Corporation's capital equals 10 million dollars and the market value of its stock for the next 10 periods is listed in the table below. (The market value is listed in millions of dollars.)

(a) Calculate the value of Tobin's q for the AB Corporation in periods 1-10.
(b) Calculate the AB Corporation's investment-to-capital stock ratio in periods 1-10.
(c) Suppose that the Tobin q's and the investment-to-capital stock ratios for all businesses behave like that of the AB Corporation during periods 1-10. Other things being equal, explain how the economy's IS curves shift during periods 2-10.
(d) Given your answer to part c, explain how the monetary policymakers would change the interest rate in periods 2-10 if they followed either an activist policy aimed at preventing rises in either the inflation or unemployment rate or a Taylor Rule.

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Period 1 2 3 4 5 6 7 89 10 0 5 0 Market value 1 12 12 11 10 9 8 8 9 10