Assume That Some Large Foreign Countries Begin to Subsidize Investment

question 87

Multiple Choice

Assume that some large foreign countries begin to subsidize investment by instituting an investment tax credit. Then, if world saving does not depend on the interest rate, world investment:

• A) will rise and small country investment will fall.
• B) will rise and small country investment will remain unchanged.
• C) will remain unchanged and small country investment will fall.
• D) and small country investment will both remain unchanged.

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Definitions:

U.S. Dollar

The official currency of the United States, widely used as a benchmark in international trade and financial transactions.

Real Interest Rates

The interest rate modified to account for inflation, indicating the actual cost of borrowing and the genuine return for investors.

Appreciate

To increase in value or worth over time, commonly used in financial contexts.

Depreciate

The process by which an asset's value decreases over time due to use, wear and tear, or obsolescence.