Problem
1. Using the expression for the expected marginal product of capital, , plot the MPKe curve and determine the desired level of capital next period (measured in trillions) if the user cost equals 0.30 (assume the price of capital is normalized to 1.0).
2. Explain the consequences of the following events on the desired level of capital stock for the next period according to the neoclassical theory of investment:
a) An autonomous easing of monetary policy.
b) Increase in the depreciation rate of capital. c) An increase in productivity.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.