《初级宏观经济学》（英文版）Chapter 9 Theory of Investment

Chapter 9 Theory of Investment 友学经济学院

Chapter 9 Theory of Investment 0 10 20 30 40 90 91 92 93 94 95 96 97 98 99 00

Topics to be Discussed o 9.1 Decision of investment o 9.2 Investment function o 9. 3 Inventory investment Investment in residential structures 友学经济学院

Topics to be Discussed  9.1 Decision of investment  9.2 Investment function  9.3 Inventory investment & Investment in residential structures

9.1 Decision of Investment o Concept of investment Flow of payout that will increase the stock of capital o Categories of investment . fixed business investment .s Inventory investment Investment in residential structures 友学经济学院

9.1 Decision of Investment  Concept of investment ❖ Flow of payout that will increase the stock of capital  Categories of investment： ❖ Fixed business investment ❖ Inventory investment ❖ Investment in residential structures

9.1 Decision of Investment o Micro basic( use fix business investment as an example Two procedures of investment decision Decide desired capital stock Get desired capital stock by investment 友学经济学院

9.1 Decision of Investment  Micro basic（ use Fix business investment as an example） ❖ Two procedures of investment decision  Decide desired capital stock；  Get desired capital stock by investment

9.1 Decision of Investment o Desired capital stock . o Fixed capital stock that can achieve maximal profit when added to other production elements o Principle to decide desired capital stock .o Principle to decide desired capital stock(ignore tax) Marginal income of capital=price of the capital 友学经济学院

9.1 Decision of Investment  Desired capital stock ❖ Fixed capital stock that can achieve maximal profit when added to other production elements  Principle to decide desired capital stock： ❖ Principle to decide desired capital stock (ignore tax）： Marginal income of capital=price of the capital

9.1 Decision of Investment Principle to decide desired capital stock (take tax into account) MR(1-t)=MC(1-u) t is the ratio of tax on profit, u is the favorable term such as tax-cut MR=[(1-u)/(1t)]MC If u=t, tax will not influence investment * If u>, tax will encourage investment If ust, tax will hinder investment 友学经济学院

9.1 Decision of Investment ❖ Principle to decide desired capital stock （take tax into account）：  If u=t，tax will not influence investment；  If u>t，tax will encourage investment；  If u<t，tax will hinder investment。 MR（1-t）=MC（1-u） t is the ratio of tax on profit，u is the favorable term such as tax-cut MR= [（1-u）/ （1-t）]MC

9.1 Decision of Investment o Given Yo, the decision of desired capital stock K* R K MC 友学经济学院

9.1 Decision of Investment  Given Y0，the decision of desired capital stock K* R kMR MC Y0 K*

9.1 Decision of Investment o When output changes, the decision of desired capital stock R K K MC 友学经济学院

9.1 Decision of Investment When output changes， the decision of desired capital stock MR MC Y0 K* Y1 K′ R k

9.1 Decision of Investment o From all above, desired capital stock will decided by two elements Price to rent capital Rk .o Planned output Y ⊙ Express by function: K≈g(R,Y 友学经济学院

9.1 Decision of Investment  From all above, desired capital stock will decided by two elements： ❖ Price to rent capital Rk ❖ Planned output Y  Express by function： K*=g(Rk ,Y)

9.1 Decision of Investment o Decide price of renting capital lanore the price change of capital Rk=(r+d) pk .s Consider the price change of capital Rk=(R+d)Pk-△Pk 友学经济学院

9.1 Decision of Investment  Decide price of renting capital： ❖ Ignore the price change of capital ❖ Consider the price change of capital Rk=（R+d）Pk Rk=（R+d）Pk -△Pk