Use the Model Developed in Chapter 3 and Assume That

question 129

Multiple Choice

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when the government lowers taxes on business investment, thus increasing desired investment, but does not change government spending or change any taxes that
Affect disposable income:

• A)investment increases and the interest rate rises.
• B)investment is unchanged and the interest rate rises.
• C)investment and the interest rate are both unchanged.
• D)investment decreases and the interest rate rises.

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Definitions:

Prior Period Adjustment

An amendment to the financial statements, correcting errors from previously reported periods or adjustments due to changes in accounting policies.

Retained Earnings

The portion of a company's profit that is held back and not distributed to shareholders as dividends, usually used for reinvestment in the business or to pay off debt.

Depreciation Expense

Spreading out the price of a tangible resource over the period it remains useful.

Common Stockholders' Equity

The portion of a company's equity that is attributable to common stock owners, reflecting their residual interest in the company's assets after liabilities are deducted.