##### Macroeconomics Ch 4 Num 7 Formulas

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1

Tax-Adjusted user cost of capital (uc)

uc = [(r + d) * pk]/(1-T)

2

Desired future capital stock (K*)

MPKf = tax-adjusted uc

Get K* from MPKf function

Note: easier to calculate tax-adjusted uc and plug that in for uc value, plug in MPKf and solve for K*

3

Desired level Investment (Id)

Id = K* - K + (d*K)

4

Deriving a function of Id and r

1. MPKf = [(r + d) * pk]/(1 - T)

so that K* = B +/- Xr

2. Plug K* function into Id = K* - K + (d*K)

so that Id = B +/- Xr