Katie owns a nail salon. She needs to update her shop with new customer massage chairs and work stations for her technicians. If the Fed were to lower interest rates by 1.5 percentage points, at the same time that the government increased the tax rate by 1.5%, she could immediately determine that updating her shop would not increase or decrease her financial position.

Question

Quizplus · Accepted Answer

Lowering of interest rates would make it cheaper for Katie to borrow money for updating her shop, but the increase in tax rate would decrease her profits. Therefore, her financial position would not remain the same.

Katie Owns a Nail Salon