What is Tobin's q? How tight is the relation between Tobin's q and investment?
What will be an ideal response?
Tobin constructed a variable corresponding to the value of a unit of capital in place relative to its purchase price. This variable is called Tobin's q. The data shows that it appears that there is a strong relation between investment this year and Tobin's q last year. Put another way, movements in investment this year are more closely associated with movements in the stock market last year. This is because investment decisions and stock market prices depend very much on the same factors-expected future profits and expected future interest rates.
You might also like to view...
Describe what is a J Curve?
What will be an ideal response?
A vice president of a company argues that the president of the company should raise workers’ wages if the president wants less absenteeism. The president says that wages probably should be cut so that the workers could not afford to miss so much work
Evaluate the two views using the income and substitution effects in your analysis. Please provide the best answer for the statement.