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Suppose that an investment tax credit is stated to be temporary in nature, and the credit will be 10% on newly acquired capital (investment) equipment and will last just one year only.
a. What would you predict to be the effect of this tax credit in the long-run (say, 5 or 6 years)?
b. What would you predict to be the effect of this tax credit in the current year and the following year?
c. How would your answers to parts (a) and (b) differ if the tax credit were permanent?
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In the long run A. price and output levels are mutually dependent. B. the level of output depends on the price level. C. the level of output is independent of the price level.
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Q. Investment demand of the AS-AD model? Investment demand. As long as we keep nominal interest rate (and thus real interest rates) constant, there is no reason for demand for
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