the objective is to understand investment tax and demand

PROBLEM 1 Suppose that Congress is considering an investment tax credit, which subsidizes domestic investment. 1. Which of the following accurately describes the effect of an investment tax credit? CIRCLE all that appiy. Net capital outow decreases National saving increases Exchange rate decreases Domestic investment decrease Trade balance increases Real interest rate increases 2. As a result of the investment tax credit, domestic goods wiii become (LESS / MORE) expensive for foreigners to purchase. Suppose the Canadians suddenly have a switch in taste from Japanese automobiles to American automobiles. On the following graph, indicate what happens to the demand for U.S. dollars in the market for foreign-currency exchange as a result of this change in tastes. Supply O Demand Supply Real Exchange Rate Demand Quantity of Dollars This causes the value of dollars in the market for foreign-currency exchange to rise , and the equilibrium quantity of net exports to remain unchanged