The Canadian federal government can encourage a rightward shift of the investment demand curve with which of the following policies:
1) an increase in corporate income- tax rates;
2) providing interest- rate subsidies on loans to firms;
3) decreasing the interest rate.

Question

Quizplus · Accepted Answer

Option 1, an increase in corporate income tax rates, would likely shift the investment demand curve leftward (towards lower investment), as firms have less after-tax profits available to invest.

Option 2, providing interest-rate subsidies on loans to firms, would reduce the cost of borrowing for firms, leading to an increase in investment and a rightward shift of the investment demand curve.

Option 3, decreasing the interest rate, would also lower the cost of borrowing and encourage firms to increase investment.  Therefore, options 2 and 3 would both encourage a rightward shift of the investment demand curve.

The Canadian Federal Government Can Encourage a Rightward Shift of the Investment