Tobin's q equals the:
A) cost of buying and renting out one unit of capital measured in units of the economy's output.
B) marginal product of capital minus the cost of capital.
C) ratio of the replacement value of installed capital to the market value of installed capital.
D) ratio of the market value of installed capital to the replacement cost of installed capital.

Question

Quizplus · Accepted Answer

Tobin's q is defined as the ratio of the market value of installed capital to the replacement cost of installed capital. This measure is used to determine whether it is more profitable for firms to invest in new capital or to purchase existing capital in the market. A q value greater than one implies that it is more profitable to invest in new capital, while a q value less than one implies that it is more profitable to purchase existing capital.

Tobin's Q Equals The