Use the Model Developed in Chapter 3 and Assume That

Multiple Choice

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when the government lowers taxes on business investment, thus increasing desired investment, but does not change government spending or change any taxes that affect disposable income, then the quantity of investment:

A) increases and the interest rate rises.
B) is unchanged and the interest rate rises.
C) and the interest rate are both unchanged.
D) decreases and the interest rate rises.