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Multiple Choice
Generally, if business taxes decrease, what is the likely effect on investment in securities?
A
Investment remains unchanged
B
Investment increases
C
Investment becomes unpredictable
D
Investment decreases
Verified step by step guidance
1
Understand the relationship between business taxes and investment: When business taxes decrease, companies have more after-tax income available, which can be used for various purposes, including investment in securities.
Consider the incentive for businesses: Lower taxes reduce the cost of doing business, making investments in securities more attractive as businesses seek to maximize returns on their surplus funds.
Analyze the economic behavior: Businesses often respond to tax reductions by reallocating resources to areas with higher potential returns, such as securities, which are generally considered a liquid and profitable investment option.
Evaluate the options provided: Compare the choices given in the problem and identify the one that aligns with the economic principle that lower taxes typically lead to increased investment in securities.
Conclude based on reasoning: The correct answer is 'Investment increases,' as lower business taxes create favorable conditions for businesses to invest more in securities.