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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Consider the model of investment in Sections 9.2–9.5. Describe the effects of each of the following changes on the K˙ = 0 and q˙ = 0 loci, on K and q at the time of the change, and on their behavior over time. In each case, assume that K and q are initially at their long-run equilibrium values.
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(a) A war destroys half of the capital stock.
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(b) The government taxes returns from owning firms at rate τ (so that a firm’s profits per unit of capital for a given aggregate capital stock are (1−t)π(K(t)) rather than π(K(t))). (c) The government taxes investment. Specifically, firms pay the government γ for each unit of capital they acquire, and receive a subsidy of γ for each unit of disinvestment.
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