Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 17, Problem 5RQ
To determine
The relationship between the value of the stock market and the value of the capital stock.
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Using the Tobin’s q theory, elaborate on the relationship between investment and capital stock?
How does the stock market affect consumption according to the permanent-income hypothesis? Is this prediction in line with the empirical evidence? .
In general, what explains the shape of the Laffer curve?
Chapter 17 Solutions
Macroeconomics (Fourth Edition)
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- Given the expected relationship between the real interest rate and investment, how would you explain a scenario where investment continued to fall despite low or even negative real interest rates?arrow_forwardExplain the term “Rational Expectations” as Thaler used in the first chapter of Misbehaving.arrow_forwardWhich of the following would not cause shift in the investment demand curve as the above graph shows? Select one: a. Business taxes b. Expectations c. Changes in real interest rates d. Acquisition, maintenance, and operating costs e. Technological changearrow_forward
- Explain how the income from production is distributed to labor and capital according to the neoclassical theory of distribution.arrow_forwardLooking at business fixed investment, elaborate on why investment is negatively related to the interest rates.arrow_forwardIs the statement below true, false or uncertain? Explain your answer. Note: Include a diagram as part of your answer. "Asha is a borrower when the interest rate is 10% and a saver when the interest rate is 20%. A decrease in the interest rate from 20% to 10% may make Asha worse off. Assume the price of the good in each period is $1."arrow_forward
- The importance of income in determining savings has persisted since the time of Keynes. Why have other theories failed to displace income as the most critical variable in saving theory?arrow_forwardWhat is a random walk? How is Hall’s random-walk model of consumption related to the life-cycle and permanent-income hypotheses?arrow_forwardHow does the life cycle and the permanent income hypothesis resolve the seemingly contradictory pieces of evidence regarding consumption behaviour?arrow_forward
- The interest rate effect states that a lower price level reduces the amount of money people wish to hold. When they lend out their excess savings, the interest rate falls. How does this affect investment spending?arrow_forwardDerive the investment function (using the neoclassical model of investment). Explain how investment responds to changes in Marginal Product of Capital and interest rate.arrow_forwardWhat is the diference between a real interest rate and a nominal interest rate?What is the intuition behind the Fisher equation?arrow_forward
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