An increase in a firm's capital gains will ________and the firm will ________.
A) raise the user cost of capital; put more money in the bank
B) increase corporate profits; offset higher capital gains by hiring more labor
C) raise the marginal product of capital; pay a higher wage
D) lower the rate of capital depreciation; hire more capital
E) lower the capital user cost; invest in more capital

Question

Quizplus · Accepted Answer

An increase in a firm's capital gains will lower the capital user cost, resulting in the firm investing in more capital. This is because an increase in capital gains lowers the cost of using capital and makes it more profitable to invest in additional capital.

An Increase in a Firm's Capital Gains Will ________And the Firm