Answer to Question #249230 in Macroeconomics for Biba

Question

9. Using the augmented investment demand schedule from question 8(c) and assuming that the interest rate is 10 percent, calculate the level of investment for cases a through d in question 8.

Answer 1

(a)

Net revenue = cost of borrowing - annual revenues.

Increase in annual revenue increase the profit of investment.

(b)

If annual revenue is kept constant, increase in cost of borrowing reduces profits.

(d)

The tax changes will lead to a reduction in profit of investment.