The desired level of the capital stock will increase if the
A)user cost of capital increases.
B)expected future marginal product of capital increases.
C)effective tax rate increases.
D)price of capital increases.

Question

Quizplus · Accepted Answer

When the expected future marginal product of capital increases, the rate of return on investment also increases. This will encourage firms to invest more and increase their capital stock in order to take advantage of the higher expected rate of return. Therefore, the desired level of the capital stock will increase. The other choices (A, C, and D) are likely to have the opposite effect and decrease the desired level of the capital stock.

The Desired Level of the Capital Stock Will Increase If