Investment spending is procyclical. In the short run, are changes in investment affected more by changes in the expected marginal product of capital, or by changes in the user cost of capital?
What will be an ideal response?
More by changes in the expected marginal product of capital. Investment spending is positively related to the expected marginal product of capital. In the short run, the expected MPK depends mostly on the expected level of output. The level of investment will conform to gloomy or optimistic forecasts, thus reinforcing them. The user cost of capital is positively related to both the real interest rate and the real price of capital, which are procyclical. Changes in the user cost of capital impact investment in the opposite (countercyclical) direction, but this effect is overwhelmed by the changes in the expected marginal product of capital.
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A) official settlements account was large in the 1980s relative to the current account. B) capital and financial account has been negative for most years and was small in the late 1980s and early 1990s. C) current account has been negative for most years and was small in the late 1980s and early 1990s. D) current account was positive until 1992 then turned negative. E) current account was negative until 1992 then turned positive.
According to new growth theory, growth
A) occurs when real GDP greater than the subsistence level. B) depends on the population growth rate. C) is unending. D) ends when competition disappears. E) cannot be sustained without government hel