Explain how changes in corporate taxes affect the investment decisions of firms
What will be an ideal response?
Changes in corporate taxes change the user cost of capital, which changes the desired capital stock and investment. If corporate taxes increase, the user cost of capital increases, which will reduce the desired capital stock and reduce investment. Decreases in corporate taxes will decrease the user cost of capital, which then increases the desired capital stock and increases investment.
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To maintain a price below the equilibrium price,
a. demand must increase. b. supply must increase. c. the government must set a ceiling price. d. supply must decrease.
The process where financial intermediaries create and sell low-risk assets and use the proceeds to purchase riskier assets is known as
A) risk sharing. B) risk aversion. C) risk neutrality. D) risk selling.
Suppose your utility function for food (F) and clothing (C) is u(F,C) = F + 4C. If you reduce your clothing consumption by 2 units, how much do you have to increase your food consumption in order to maintain the same utility level?
A) 2 units B) 4 units C) 6 units D) 8 units
In the short run, perfectly competitive firms can
A. make an economic profit. B. take a loss. C. break even. D. All of the responses are correct.