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