The adoption of an investment tax credit in a small open economy is likely to lead to:
A) no change in either domestic investment or domestic saving in the small open economy.
B) an increase in both domestic investment and domestic saving in the small open economy.
C) an increase in domestic saving but no change in domestic investment in the small open economy.
D) an increase in domestic investment but no change in domestic saving in the small open economy.

Question

Quizplus · Accepted Answer

The adoption of an investment tax credit incentivizes domestic firms to invest more, leading to an increase in domestic investment. However, it does not necessarily lead to an increase in domestic saving as households may choose to save less due to the tax credit. Therefore, there is an increase in domestic investment but no change in domestic saving.

The Adoption of an Investment Tax Credit in a Small