Question

Based on your knowledge of the flexible accelerator model of investment, suppose you have information on initial capital stock in year 2009 to be Ȼ10,000, and that desired capital stock is Ȼ80,000. If the factor by which firms plan to close the gap between desired capital stock and actual capital stock is 0.15, how many years will take for the firms to meet the desired capital stock?

Answer 1

Initial capital stock = Ȼ10,000

Desired capital stock = Ȼ80,000

Factor = 0.15

No. of years = t

K_t = vY_t

Where;

K_t is the desired required stock of capital

Y_t. Initial capital stock stock of capital

v – accelerator factor

t - time

$(Ȼ80,000)_{t} = (0.15 \times Ȼ10,000)_{t}$

Ȼ80,000 = Ȼ 1500t

t = Ȼ80,000/Ȼ1500

t= 53.33