Question

In a large open economy , an investment tax credit raises the real interest rate, __________ the trade balance, and __________ net capital inflow.

Answer 1

Answer:

The correct approach will be "decreases, decreases."

Explanation:

• The investment tax incentive helps corporations to exclude a portion of the expense including its investment towards taxes. This raises disposable income unintentionally. This increase in household inflation rate is contributing to something like an increase in the rate of trade.
• As either the significance of the domestic country's currency, export industries decreasing trend as well as imports rise, resulting throughout a decline throughout the terms of payment. The capital flows grow and indeed the outflow declines even as actual interest rates go up, the decline in net investment output.