Suppose that interest rates and investment both rise. Which of the following best explains these changes?
A)The government is running a larger deficit.
B)The government has instituted an investment tax credit.
C)The government has replaced the income tax with a consumption tax.
D)The government has reduced its deficit.

Question

Quizplus · Accepted Answer

An investment tax credit encourages more investment by reducing the cost of investment, which can lead to higher demand for funds and thus higher interest rates.

Suppose That Interest Rates and Investment Both Rise