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Macroeconomic Theory I
ECON222
Fall 2017
This is the expected real cost of using a unit of capital for a specied
period of time
It can be expressed as
uc = (r + d )pK
where
uc1
f
MPK
K*1 K
Figure: Determination of desired capital
uc2
uc1
f
MPK
K*2 K*1 K
Kt + 1 Kt = It d.Kt
If Kt +1 = K , desired investment is
Itd = K (1 d ) Kt