E Hawkes Learning | Home Cengage MindTap . Cengage Learnin × G Suppose that Cong
ID: 1115676 • Letter: E
Question
E Hawkes Learning | Home Cengage MindTap . Cengage Learnin × G Suppose that Congress is c x,O Prob x ex.html?nbld-6247208nbNodeld-229772203&deploymentld; 57461018100041491026330904&eISBN; C ng.cengage.c MINDTAP plems & Applications (Ch 19) e Today at 11:59 PM EST . Problems and Applications Q2 Suppose that Congress is considering an investment tax credit, which subsidizes domestic investment. Complete the following table by indicating how this policy affects national saving, domestic investment, net capital outflow, the real interest rate, the exchange rate, and the trade balance. Increase Decrease National saving Domestic investment Net capital outflow Real interest rate Exchange rate Trade balance True or False: As a result of the investment tax credit, exports to other countries decrease. O True False Grade It Now 27 28Explanation / Answer
As people would want to invest more, they would borrow, take more loans,causing interest rates to rise. Increased investment will cause national savings to increase.
When congress provides the investment tax credit, the investmnet is subsidised, therefore domestic investment will increase.
As domestic rates will increase, the capital inflow will increase and capital outflow will reduce. Thus, net capital outflow will reduce.
As explained above, real interest rate increase.
The reduction in net capital outflow causes the US dollar supply to fall, due to which exchange rate appreciates/increases.
The dollar appreciates, therefore net exports decrease , causing trade balance to decrease.
Yes, the exports to oother countries will decrease due to appreciation in dollar.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.