Chapter 11 : Real Intertemporal Models with Investment
Firms invest more if :
1.)The lower its current capital stock
2.)The greater future expected productivity
3.)The lower the real interest rate
4.)
This Model Measures :
1Aggegrete Output
2Investment
3Consumption
4The real interest rate
5Labor market variables of aggregate shocks to Government spending
6Total factor productivity
7The nations capital stock
8Credit market risk
Consumer Side
Firm Side
The opportunity cost of investing in more capital is the real rate of interest, which is the rate of
return on the alternative asset in the economy.
The marginal cost of investment for the firm is what it gives up, in terms of the present value of profit
(by investing one unit of capital in the present period)
Government Side
The Government finances current purchases through
1.)Taxation
2.)Issuing Government Bonds
and in the future
1.)It pays off the principal on the bond
2.)It finances future spending through lump-sum taxation
Firms invest more if :
1.)The lower its current capital stock
2.)The greater future expected productivity
3.)The lower the real interest rate
4.)
This Model Measures :
1Aggegrete Output
2Investment
3Consumption
4The real interest rate
5Labor market variables of aggregate shocks to Government spending
6Total factor productivity
7The nations capital stock
8Credit market risk
Consumer Side
Firm Side
The opportunity cost of investing in more capital is the real rate of interest, which is the rate of
return on the alternative asset in the economy.
The marginal cost of investment for the firm is what it gives up, in terms of the present value of profit
(by investing one unit of capital in the present period)
Government Side
The Government finances current purchases through
1.)Taxation
2.)Issuing Government Bonds
and in the future
1.)It pays off the principal on the bond
2.)It finances future spending through lump-sum taxation
