Suppose that the government puts out a tax incentive that encourage people to save more money. Assume that this does not lead to a change in Y* or G, but does lead to a decrease in Consumption. 7. What would we expect to happen to interest rates? Explain your answer. 8. Would this change in interest rates increase or decrease the present value (PV) of the investment that this question is considering? Explain your answer.
Suppose that the government puts out a tax incentive that encourage people to save more money. Assume that this does not lead to a change in Y* or G, but does lead to a decrease in Consumption. 7. What would we expect to happen to interest rates? Explain your answer. 8. Would this change in interest rates increase or decrease the present value (PV) of the investment that this question is considering? Explain your answer.
Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance
Section: Chapter Questions
Problem 1.3P
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