Explain the effect of increase in taxes on business profits

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Firms care about their after-tax rate of return on investment projects. In the market for loanable funds, draw a graph and explain the effect of an increase in taxes on business profits. (For simplicity, assume no change in the federal budget deficit or budget surplus.) What happens to the equilibrium real interest rate and the quantity of loanable funds? What will be the effect on the level of investment by firms and the economy's capital stock in the future?

Reference no: EM131136090

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