Suppose that interest rates fall and investment falls. Which of the following best explains these changes?
A)The government went from a surplus to a deficit.
B)The government has repealed an investment tax credit.
C)The government has replaced a consumption tax with an income tax.
D)The government is allowing nontaxable savings deposits of up to $5000 per year.

Question

Quizplus · Accepted Answer

Repealing an investment tax credit would increase the cost of investment, causing a decrease in investment. A fall in interest rates would make borrowing cheaper and therefore make investment more attractive, so this alone would typically lead to an increase in investment.

Suppose That Interest Rates Fall and Investment Falls