THE INTEREST ELASTICITY OF THE RATIO OF FIXED INVESTMENT TO NATIONAL INCOME AS ESTIMATED FROM ENGINEERING PAYOUT STUDIES*

Abstract

s of Doctoral Dissertations 561 10 Net return on increase in capital for constant current input (100 X L 9/L 8) 17.2 6.3 11 Change -11.0 12 Ratio cost of building to gross income (L 2/L 3) 3.51 3.64 3.86 13 Same, centered 3.58 3.75 14 Change in uncentered ratio (from L 12) .13 .22 15 Per cent change (100 X L 14/L 13) 3.58 5.90 16 Same, centered 4.74 17 Interest responsiveness of desired fixed-capital-to-grossoutput ratio (L 16/L 11) .43 Line 17 means that the desired fixed-capital-to-gross-output ratio for the skyscraper would rise by 0.43 per cent of itself if long-term rates and yields fell 1 percentage point. The average interest responsiveness so obtained for a small sample consisting of five groups of operations-the skyscraper, steam electric plants, chemical engineering operations, pipes, and highway surfaces-came out about -2. Before applying any such responsiveness to the whole economy, one must allow for the probability that an interest rate cut would reduce the prices of fixed capital goods in a smaller proportion than those of. consumer goods. The -2 responsiveness would become more negative, but in no case more negative than -5. The responsiveness of the investment-output ratio is the same as that of the capital-output ratio, as stated earlier. Interest responsiveness in our examples does not increase markedly in traversing a zero pure rate of interest. An appendix obtains an interest responsiveness for oil field capital, taking land instead of current input as the fixed factor. This content downloaded from 207.46.13.85 on Tue, 23 Aug 2016 05:47:05 UTC All use subject to http://about.jstor.org/terms