Macro- & Monetary Economics

Prio: Normal, Part I: Neoclassical Model, Type: MC, Quiz 1

The government wishes to bring about an increase in investment expenditures and introduces an investment tax credit, i.e. firms receive a subsidy of s per unit of investment in the current period. This leads to

  • a rise in investment because the net marginal product of capital rises
  • a rise in investment because the marginal costs of investment fall
  • a fall in investment because the marginal costs of investment rise
  • a fall in investment because the marginal benefits of investment fall
 

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