Which of the following are true regarding shocks to capital stock? Choose all that apply a.Following...

Which of the following are true regarding shocks to capital stock?

Choose all that apply

a.Following a rise in Af, firms increase capital stock due to the anticipation of higher future productivity of capital

b.As Af rises, firms invest more in the capital since the shocks cause MPKf to be higher than user costs

c.A fall in the real price of capital causes MPKf to be higher than user costs since the MPKf curve shifts up

d.Following a fall in Af, it must be the case the MPKf falls and although firms decrease Kf, MPKf remains lower.

Solutions

Expert Solution

Option a is correct. Following a rise in Af ,firms increase capital stock due to the anticipation of higher productivity of capital leads to positive shocks regarding capital stock. As firm rises their investment on capital results higher productivity of capital in future All the other options are wrong . Because due to rise Af, firm increase the investment in capital and creates higher future productivity of capital is one of the main reasons for the positive shocks of capital

Rahul Sunny answered 1 year ago

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