Question

Analyze the effects of the following, on required levels of investment, both in the short run and in the long run

i. An epidemic that leads to considerable losses in the labor force.

ii. Annexation of a newly deserted city (that can be interpreted as a rise in capital stock)

iii. Improvements in anti-malware software that decreases the depreciation rate for computers

Answer 1

The required level of investment on the following cases in the short run and long run are as follows:
Case1- an epidemic that leads to considerable losses in the labor forces: this will lead to the decrease in the investment level of work force because of decreases in the production level which ultimately requires the demand of lobor forces both in the short run and long run.
Case2- annexation of a newly deserted city (that can be interpreted as a rise in capital stock): this will increases the investment level of both short run and the long run because the annexation of a newly deserted city required the overall development of every sector and this will require the huge investment both in the short run and long run.
Case 3- improvements in anti-malware software that decreases the depreciation rate for computers: it decreases the short run and long run investment because it ultimately decreases the replacement cost of the computers.