Economics 4801 Name_____________
Spring 2006
Dr. Dao
Quiz 5


Use the neoclassical model of investment to explain the impact of each of the following on the rental price of capital, the cost of capital, and investment:

a. Anti-inflationary monetary policy raises the real interest rate.

b. An earthquake destroys part of the capital stock.

c. Immigration of foreign workers increases the size of the labor force.