Suppose that investment rises and interest rates fall. Which of the following be

Question

Suppose that investment rises and interest rates fall. Which of the following best explains these changes? A.  The government went from surplus to deficit. B.  The government repealed an investment tax credit. C.  The government reduced the tax rate on savings. D.  The government implemented an investment tax credit. Suppose that investment rises and interest rates fall. Which of the following best explains these changes? A.  The government went from surplus to deficit. B.  The government repealed an investment tax credit. C.  The government reduced the tax rate on savings. D.  The government implemented an investment tax credit.

Explanation / Answer

Solution-

The correct option is C. The government reduced the tax rate on savings.

Reason-

When government reduced tax rates on savings then investments increases and interest rates decrease. It is an expansionary fiscal policy.The expansionary fiscal policy is defined as a rise in government expenditure and / or reduction in taxes, which causes a rise in the government's budget deficit or reducing its budget surplus.

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