3. Suppose local governments throughout the United States increase their tax on business inventories. What would you expect to happen to U.S. investment? Why?

The U.S investment will fall because the increase in the tax will reduce its corporate profit and gross domestic investment will fall. Since the primary motive of every firm or company is to earn profit but if their profit decreases then the investor will not invest. Moreover, the company or investor will choose a different country where it can make more profit. Therefore, a rise in tax rate demotivates the investment.

Tundexi Tundexi · Answer 2 · 2022-01-07T14:04:09+01:00

If the local governments increase their tax on business inventories, then, investment will decline.

Basically, when there are increase of tax on business inventories, the country's gross domestic private investment will fall because investor are discouraged to invest.

The gross private domestic investment measure the amount of money that domestic businesses invest within their own country

Hence, the high tax will discourage current and new investors.

In conclusion, If the local governments increase their tax on business inventories, then, investment will decline.