Suppose the federal government wants to encourage businesses to increase investment spending.Which policy may be the most effective?
A)an increase in corporate income taxes
B)an increase in real interest rates
C)an increase in warnings of a coming recession
D)an increase in tax deductions for investment spending

Question

Suppose the federal government wants to encourage businesses to increase investment spending.Which policy may be the most effective?
A)an increase in corporate income taxes 
B)an increase in real interest rates 
C)an increase in warnings of a coming recession 
D)an increase in tax deductions for investment spending

Quizplus · Accepted Answer

An increase in tax deductions for investment spending is likely to be the most effective policy in encouraging businesses to increase investment spending. This is because the policy directly reduces the cost of investment, making it more attractive for businesses to invest. In contrast, increasing corporate income taxes and real interest rates would make investment more expensive, discouraging businesses from investing. Warning of a coming recession may also lead businesses to reduce investment spending rather than increasing it.

Suppose the Federal Government Wants to Encourage Businesses to Increase