Int. Macro

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Suppose the nation’s capital stock is equal to 3200 in 2011 and that a rise in the marginal product of capital raises the desired capital stock to 3800 in 2012. Suppose also that the desired capital stock remains at 3800 in subsequent years. Assume also that net investment is described by the partial adjustment model,

I N= λ(K*-K-1)

where λ = .25

Calculate the values of net investment in 2012 and 2013.


Just need help on where to start. Professor does not give examples and am left struggling on how to solve.

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