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4. The Production function is given by Y= AK!/2L1/2 The economy initial level of capital stock is 60,000 billion dollars. The nominal interest rate is 4%, the inflation rate is 2% and the depreciation rate is 10% . The real price of capital is 3000. a) Calculate the value of the cost of capital. b) What is the current stock of capital and future stock of capital (next period) if the value of current production is equal to 20,000 and next year will be 22,000, assuming that interest rates, inflation and depreciation stay constant. c) Calculate net and gross investment in both periods (current and future).

4. The Production function is given by Y= AK!/2L1/2 The economy initial level of capital stock is 60,000 billion dollars. The nominal interest rate is 4%, the inflation rate is 2% and the depreciation rate is 10% . The real price of capital is 3000. a) Calculate the value of the cost of capital. b) What is the current stock of capital and future stock of capital (next period) if the value of current production is equal to 20,000 and next year will be 22,000, assuming that interest rates, inflation and depreciation stay constant. c) Calculate net and gross investment in both periods (current and future).

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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4. The Production function is given by Y= AK1/2L1/2 The economy initial level of capital stock is 60,000 billion dollars. The nominal interest rate is 4%, the inflation rate is 2% and the depreciation rate is 10% . The real price of capital is 3000. a) Calculate the value of the cost of capital. b) What is the current stock of capital and future stock of capital (next period) if the value of current production is equal to 20,000 and next year will be 22,000, assuming that interest rates, inflation and depreciation stay constant. c) Calculate net and gross investment in both periods (current and future).
Transcribed Image Text:4. The Production function is given by Y= AK1/2L1/2 The economy initial level of capital stock is 60,000 billion dollars. The nominal interest rate is 4%, the inflation rate is 2% and the depreciation rate is 10% . The real price of capital is 3000. a) Calculate the value of the cost of capital. b) What is the current stock of capital and future stock of capital (next period) if the value of current production is equal to 20,000 and next year will be 22,000, assuming that interest rates, inflation and depreciation stay constant. c) Calculate net and gross investment in both periods (current and future).
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