For each of the following changes, explain what will happen to the expected marginal product of capital curve or the user cost of capital curve, and what will happen to the desired capital stock:
a. The real price of capital goods increases.
b. The depreciation rate increases.
c. The corporate income tax rate decreases.
d. The real interest rate decreases.
e. Expected future output decreases.
a. When the real price of capital goods increases, the user cost of capital curve shifts up and the desired capital stock decreases.
b. When the depreciation rate increases, the user cost of capital curve shifts up and the desired capital stock decreases.
c. When the corporate income tax rate decreases, the user cost of capital curve shifts down and the desired capital stock increases.
d. When the real interest rate decreases, the user cost of capital curve shifts up and the desired capital stock decreases.
e. When expected future output decreases, the marginal product of capital curve shifts to the left and the desired capital stock decreases.
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In public education, the value of the services provided is
A) greater than the value that parents and students place on the services. B) equal to the value that parents and students place on the services. C) less than the value that parents and students place on the services. D) zero since they are a public good.
Pat can either drive to work, which takes half an hour and uses $1.50 worth of gas, or take the bus, which takes an hour and costs $1.00. How should Pat get to work?
A. Pat should take the bus if saving half an hour is worth $0.50 or more. B. Pat should drive if saving half an hour is worth $0.50 or more. C. Pat should drive because it saves half an hour relative to taking the bus. D. Pat should take the bus because it costs $0.50 less than driving.