Suppose it is an election year and the economy is in a recession. The opposition candidate proposes an investment tax credit to take effect next year after he takes office. If the public believes the opposition candidate has a good chance of winning, the effect of this promise will likely be to:
A) increase investment both this year and next year.
B) decrease investment both this year and next year.
C) increase investment this year and decrease it next year.
D) decrease investment this year and increase it next year.

Question

Quizplus · Accepted Answer

If the public believes that the opposition candidate has a good chance of winning, investors may hold off on making investments this year in anticipation of the investment tax credit next year. This could lead to a decrease in investment this year. However, next year, if the tax credit is implemented as promised, there could be an increase in investment.

Suppose It Is an Election Year and the Economy Is