Sub part (a): Explanation The tax is a unilateral payment made by the people to the government of the economy. When the government collects the taxes, the revenue of the government is collected with which the government can make the public expenditures. When the government introduces the tax credit on the investments, this means that those who have investments in the economy will have some tax credits available, which subsidizes the domestic investments of the economy. This passing of law will make the desire of the capitalists to invest more to increase. As a result, more borrowings take place in the economy, which increases the demand for the lonable funds in the lonable fund market. This situation can be illustrated as follows: The increased demand for the lonable funds in the lonable fund market would lead to the increase in the real interest rate in the economy... Sub part (b): To determine Impact of investment tax credit that subsidizes domestic investment.

Impact of investment tax credit that subsidizes domestic investment.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN: 9781337091985

Author: N. Gregory Mankiw

Publisher: Cengage Learning

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Question

Chapter 14, Problem 2PA

Sub part (a):

To determine