The adoption of an investment tax credit in a small open economy is likely to lead to:
A)no change in either domestic investment or domestic saving.
B)an increase in both domestic investment and domestic saving.
C)an increase in domestic saving but no change in domestic investment.
D)an increase in domestic investment but no change in domestic saving.

Question

Quizplus · Accepted Answer

In a small open economy, an investment tax credit reduces the cost of investment, leading to an increase in domestic investment. However, domestic saving is determined by factors like income and consumption preferences, which are not directly affected by the tax credit.

The Adoption of an Investment Tax Credit in a Small