Question

Suppose that Congress is considering an investment tax credit, which subsidizes domestic investment. Which of the following accurately describes the effect of an investment tax credit? Check all that apply.
A. Trade balance increases Exchange rate decreases
B. Real interest rate increases National saving increases
C. Net capital outflow decreases Domestic investment decreases True or False:
D. As a result of the investment tax credit, exports to other countries decrease. True False

Answer 1

Answer:A. Trade balance increases Exchange rate decreases

C. False

D. False

Explanation:

A subsidy on domestic investment will encourage more investment from the populace as the cost of investment will reduce which invariably means more goods are produce, export increase, trade balance increases and exchange rate decrease.

The real Interest rate will equally fall due to the subsidy and domestic investment increases.