Holding Other Factors Constant, If Congress Passes a 5% Investment

Multiple Choice

Holding other factors constant, if Congress passes a 5% investment tax credit under which a firm receives $5 in tax refunds from the government for every $100 it spends on new capital equipment, then the real interest rate will ________ and the equilibrium quantity of national saving and investment will ________.

A) increase; increase
B) increase; decrease
C) increase; not change
D) decrease; increase