Answer to Question #284973 in Macroeconomics for Tenn

Question

2. If saving dropped sharply in the economy, what would likely happen to investment? Why?

3. Suppose local governments throughout the United States increase their tax on business inventories. What would you expect to happen to U.S. investment? Why?

4. Suppose the government announces it will pay for half of any new investment undertaken by firms. How will this affect the investment demand curve? 

Answer 1

2.If savings drop sharply in the economy, the investments will also drop similarly. In a closed economy, savings are utilized to generate investments.

3.The investments will fall. The U.S investment will fall because the increase in the tax will reduce its corporate profit and gross domestic investment will fall. Since the primary motive of every firm or company is to earn profit but if their profit decreases then the investor will not invest. Moreover, the company or investor will choose a different country where it can make more profit. Therefore, a rise in tax rate demotivates the investment. 

4.The investments will grow. The investment curve will shift to the left.