Suppose a developing country decides to institute an investment tax credit. As a result, what is most likely to happen?
A) Interest rates would rise, and investment would fall.
B) Interest rates would fall, and investment would rise.
C) Both interest rates and investment would fall.
D) Both interest rates and investment would rise.

Question

Quizplus · Accepted Answer

The investment tax credit would increase the expected return on investment, making it more attractive for investors. Therefore, investment would be likely to increase. Additionally, as more investors seek to take advantage of the tax credit, demand for credit would also rise, which would put upward pressure on interest rates.

Suppose a Developing Country Decides to Institute an Investment Tax