1) Discuss the cyclical behavior of aggregate investment and compare it with the volatility of aggregate consumption. Next, describe the different components of aggregate investment.
2) Discuss the neoclassical theory of investment. Be careful in showing the final formula that determines the aggregate capital stock. Discuss the effects on investment of: i) an increase in the interest rate; ii) a reduction in the depreciation rate of capital
3) Explain the Keynesian theory of investment. How does an increase in firms' confidence about future profits affect firms' investment decisions?
4) What does the Tobin's q ratio mean? Interpret the numerator and the denominator of the ratio.
5) What are inventories and why do firms keep inventories?