Author Question: An expected tax increase will tend to cause A) an increase in stock prices. B) a reduction in ... (Read 114 times)

misspop · **on:** Jun 30, 2018

An expected tax increase will tend to cause

A) an increase in stock prices.
B) a reduction in stock prices.
C) no change in stock prices.
D) an ambiguous effect on stock prices.

Question 2

Explain the determinants of investment. Include in your answer an explanation of how a change in each determinant affects investment.

What will be an ideal response?

akpaschal · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

Investment depends on the level of sales/output and on the interest rate. As output changes, the demand for goods will change and firms will change investment so that their capacity changes with the level of economic activity (and demand). I also depends on the interest rate. As the interest rate rises, the cost of borrowing rises. Firms will cut back on investment as borrowing costs rise.