Answer to Question #285008 in Macroeconomics for kika

Question

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?

Answer 1

Solution:

The US investment will decrease since the investors who are normally self-interest-oriented people, would like to make profits, therefore increasing tax on business inventories, will decrease their profit levels.

Their inventories will decrease due to the fact that they will be setting more aside to cover production costs, and this will obviously result in low investments.