Desired Level of the Capital Stock
-Consider the two graphs above.Suppose that allowable deductions from taxable business income are increased.This would ________ the desired level of the capital stock,as depicted in graph ________.
A)increase;B
B)increase;A
C)decrease;B
D)decrease;A

Question

Desired Level of the Capital Stock 
-Consider the two graphs above.Suppose that allowable deductions from taxable business income are increased.This would ________ the desired level of the capital stock,as depicted in graph ________.
A)increase;B 
B)increase;A 
C)decrease;B 
D)decrease;A

Quizplus · Accepted Answer

Increasing allowable deductions from taxable business income effectively reduces the cost of capital, making investment more attractive. This would increase the desired level of the capital stock, which is depicted in graph B.