Investment will increase if:
A)business taxes and real interest rates increase at the same time.
B)business taxes increase and real interest rates decrease at the same time.
C)business taxes decrease and real interest rates increase at the same time.
D)business taxes and real interest rates decrease at the same time.
E)business taxes remain the same and real interest rates increase.

Question

Quizplus · Accepted Answer

When both business taxes and real interest rates decrease at the same time, it makes it cheaper for businesses to borrow money and invest in their operations. This creates a more favorable economic environment for investment. Conversely, if either business taxes or real interest rates increase, it becomes more expensive for businesses to invest, and therefore investment activity tends to decrease. Choice D is the only option where both business taxes and real interest rates decrease simultaneously, indicating an increase in investment.

Investment Will Increase If