Suppose the U.S. has an investment opportunity which costs $200 which will increase output from 100 to 110 per quarter. The investment would take effect after t = 0. What is the marginal product of capital (MPK)? What is the difference in the present value of future income in the U.S. of undertaking the investment if the real world interest rate is 8%? Should the U.S. borrow from abroad to fund the investment and why?

Suppose the U.S. has an investment opportunity which costs $200 which will increase output from 100 to 110 per quarter. The investment would take effect after t = 0. What is the marginal product of capital (MPK)? What is the difference in the present value of future income in the U.S. of undertaking the investment if the real world interest rate is 8%? Should the U.S. borrow from abroad to fund the investment and why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose the U.S. has an investment opportunity which costs $200 which will increase output from 100
to 110 per quarter. The investment would take effect after t = 0. What is the marginal product of
capital (MPK)? What is the difference in the present value of future income in the U.S. of undertaking
the investment if the real world interest rate is 8%? Should the U.S. borrow from abroad to fund the
investment and why?

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Step 1: Describe the significance of a nation's investment decisions

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Step 2: Calculate the MPK

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Step 3: Figure out the differences in the present values

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Step 4: Examine if the investment and funding from abroad is wise enough

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