This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 49 43 GMT 06 00 https www coursehero com file 14830576 6585032bf6652f5036cc419fe5e556ea 64c59cb1fb688bf19bc18e54d4e16063 KEY1 50 points total You own a fleet of offshore fishing boats and you need to determine how many fishing poles you need to buy to maximize profits Please answer the following questions given the information below Please be sure to SHOW all work A brand new fishing pole cost 1400 fishing hours this is youroutput and the rate of depreciation is 4 0 04 The real interest rate is 6 06 And the expected marginal product of capital is given by MPKf 300 5K There is a tax on capital so tao 20 20 a What is the tax adjusted user cost of capital and what is this user cost expressed in Show work 5 points uc 06 04 1400 1 20 175 fishing hoursb How many fishing poles should you buy to maximize profits Show work 5 points 175 300 5K K 25Draw a uc K graph depicting the state of affairs and label this initial profit maximizing condition as point A A correctly drawn and completely labeled diagram is worth 15 points Now conditions change You buy the fishing poles from Europe and given that the ECB has some nominal interest rates in negative territory the US appreciates so that the nominal and real price of fishing poles falls to 1200 fishing hours c Resolve for K and show as point B on your uc K diagram 5 points uc 06 04 1200 1 20 150150 300 5K K 301 This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 49 43 GMT 06 00 https www coursehero com file 14830576 6585032bf6652f5036cc419fe5e556ea 64c59cb1fb688bf19bc18e54d4e16063 d Given the shock to the euro exchange rate and the corresponding change in the real price of capital explain the intuition underlying the change in the profit maximizing level of fishing poles i e why does the firm change its behavior making sure you refer to the firm s profit maximizing condition write it out Be specific and write this like you were a professional economist Be sure to compare the actual user cost to the actual MPKf after the shocks holding K constant at its level from part b 10 points K 25 MPK 175 UC 150 UC MPK BUY 5 FISHING POLES SO THE MPK FALLS BY 25 5 x 5 TO 150 WHICH IS EQUAL TO THE UC 150 BACK TO PROFIT MAXIMIZATIONe In addition to the shock above Janet Yellen s recent testimony causes your expected marginal product of capital to change to MPKf 290 5K What would cause such a change in the expected marginal capital What did Janet Yellen say give an example SOMETHING NEGATIVE LIKE THE ECONOMY IS NOT DOING TOO WELL f Resolve for K and show as point C on your uc K diagram 5 points 150 290 5K K 28 g Similar to your answer in part d explain the intuition underlying the change in the profit maximizing level of fishing poles i e why does the firm change its behavior making sure you refer to the firm s profit maximizing condition write it out Be specific and write this like you were a professional economist Be sure to compare the actual user cost to the actual MPKf after the shock to MPKf holdingK constant at its level from part c 10 points K 30 MPK 290 5 30 140 UC 150 UC MPK SELL 2 FISHING POLES SO THE MPK RISES BY 10 2 x 5 TO 150 WHICH IS EQUAL TO THE UC 150 BACK TO PROFIT MAXIMIZATION2 This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 49 43 GMT 06 00 https www coursehero com file 14830576 6585032bf6652f5036cc419fe5e556ea 64c59cb1fb688bf19bc18e54d4e16063 1 PART 2 NEW GRADER 40 points 5 for h and 10 for i and j and 15 for graph Draw a desired investment diagram completely labeled with all the shift variables noted next to the function in parentheses with signs or depicting the initial equilibrium as point A simply draw a negatively sloped ID curve going through point A Label the initial real interest rate as r A 06 as is given above and the initial level of desired investment as IdA Note importantly that we do not have numbers for desired investment but that s ok we are focusing on the change in desired investment given the same real rate 06 Be sure to include all of the shift variables in parentheses next to this initial ID function A completely labeled and correct graph is worth 15 points Then show as point B the new level of desired investment at the same real rate 06 h Why did the level of desired investment change even though the real rate of interest did not Please be specific using the equation that connects the desired capital stock K to desired investment as we did in class K 25 MPK 175 UC 150 UC MPK BUY 5 FISHING POLES SO THE MPK FALLS BY 25 5 x 5 TO 150 WHICH IS EQUAL TO THE UC 150 BACK TO PROFIT MAXIMIZATION WHEN K RISES I RISES TOO since I K Kt dKt i 10 points Suppose that the Federal Reserve had a goal to get the capital stock the number of fishing poles purchased back to its initial level as in part b Given the two shocks as above what would they haveto do to the real rate of interest to achieve their objective Please show all work and I am looking for a specific number i e r WHAT IS MPK WHEN K 25 MPK 290 5 25 165 NEED TO GET UC TO 165165 r 04 1200 1 20 r 07j 10 points Finally explain how this most previous development a change in r would influence your two diagrams and why Please add this development to BOTH OF YOUR DIAGRAMS the UC K diagram and the desired investment diagram as point D I am asking for a discussion this question is worth ten points as r rises uc rises with it firms have an incentive to sell fishing poles to keep MPK uc and thus it is a movement along the MPK curve For the investment diagram a change in r is also a movement along the investment function We know that I K Kt dKt so that when K falls due to higher uccaused by higher r so does I 3 This study source was downloaded by 100000875991932 from CourseHero com on 12 10 2023 16 49 43 GMT 06 00 https www coursehero com file 14830576 6585032bf6652f5036cc419fe5e556ea 64c59cb1fb688bf19bc18e54d4e16063 2 50 points total 5 points each part except part e and 15 points for Sd Id graph A closed economy has full employment level of output Y of 2 000 Government purchases G are 300 taxes T are 500 Desired consumption Cd and investment Id are Cd 600 0 5 Y T 700rId 440 300ra Solve for the desired savings function in intercept slope form note the intercept is an …