If Business Taxes Are Reduced and the Real Interest Rate

question 15

Multiple Choice

If business taxes are reduced and the real interest rate increases,

• A) consumption and saving will necessarily increase.
• B) the level of investment spending might either increase or decrease.
• C) the level of investment spending will necessarily increase.
• D) the level of investment spending will necessarily decrease.

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Definitions:

Opportunity Cost

Opportunity cost represents the benefits an individual, investor, or business misses out on when choosing one alternative over another.

Sports Bar

A bar or tavern that provides a venue for people to watch sporting events, often equipped with multiple large-screen televisions.

Normal Return

The minimum profit needed by investors to justify the capital invested in a business venture, often equated to the opportunity cost.

Total Revenue

Total Revenue is the total amount of money received by a firm from sales of goods or services before any expenses are deducted.