1.Suppose the government announces it will pay for half of any new investment undertaken by firms. How will this affect the investment demand curve?

2.Suppose that every increase of $1 in real GDP automatically stimulates $0.20 in additional investment spending. How would this affect the multiplier?

3. Burger World is contemplating installing an automated ordering system. The ordering system will allow Burger World to permanently replace five employees for an annual (and permanent) cost savings of $100,000.

a. If the automated system cost $1,000,000, what is the rate of return on the investment?

b. If the system cost $2,000,000, what would be its rate of return? c. If the government were to introduce an investment tax credit that allows firms to deduct 10% of its investment from its tax liability, what would happen to the rate of return if the system costs $1,000,000?

d. If Burger World has to pay 8% to borrow the funds to purchase the system, what is the most it should pay for the system? Assume that there is no investment tax credit.