Under what circumstances does investment increase?
A)when firms become pessimistic in their expectations
B)when firms have very low capital utilization rates
C)when interest rates are higher
D)when tax rates on businesses are reduced

Question

Quizplus · Accepted Answer

When tax rates on businesses are reduced, it provides an incentive for firms to invest more since they get to keep more of their profits. This reduces their cost of capital and increases their expected profits, leading to increased investment. Thus, under such circumstances, investment increases.

Under What Circumstances Does Investment Increase