Topic 7: Setup for a Real Intertemporal Model with Investment
Videos
Real Intertemporal Model with Investment: Consumer Behavior
- Previously, we looked at dynamic consumer decisions when income was exogenous. Now, we'll expand our dynamic model even further to allow for endogenous income (via labor-leisure choices) alongside borrowing and saving behavior.
Real Intertemporal Model: Firm Behavior
- In this model, we also allow for dynamic firm decisions by allowing firms to invest in new physical capital (like buildings, equipment, machinery, computers, and software). Additionally, firms will also make optimal labor demand choices like we saw in the static model previously.
Optimal Firm Investment Decisions
- Let's dig a bit deeper into the firm's optimal investment decisions to better understand the cost-benefit analysis and see how these choices depend on other features of the economy, like the capital depreciation rate and the real interest rate.