Answer to Question #80623 in Macroeconomics for AYANDA

Question

Complete the following sentence. Investment spending will...if the...decreases.
1)increase;tax rate
2)decrease;government spending
3)remain unchanged;level of income
4)remain unchanged;interest rate

Answer 1

Investment spending will increase if the tax rate decreases.
This is due to the fact that a reduction in taxes increases the disposable income that is distributed between savings and consumption. In an equilibrium economy, savings are equal to investment.