Principles of Economics
7th Edition
ISBN: 9781305156043
Author: N. Gregory Mankiw
Publisher: Cengage Learning US
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Question
Chapter 32, Problem 2PA
Sub part (a):
To determine
Impact of investment tax credit that subsidizes domestic investment.
Sub part (b):
To determine
Impact of investment tax credit that subsidizes domestic investment.
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Suppose that Congress is considering an investment tax credit, which subsidizes domestic investment. a. How does this policy affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rate, and the trade balance?b. Representatives of several large exporters oppose the policy. Why might that be the case?
Let’s assume that some foreign countries start to subsidize investment by instituting an investmenttax credit.a) What happens to world investment demand as a function of the world interest rate?b) What happens to the world interest rate?c) What happens to investment in our small open economy?d) What happens to our trade balance?e) What happens to our real exchange rate?
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