Question

The 2017 tax plan, which cut corporate tax rates to 21%, was set to stimulate firms to invest in physical capital (as profits after taxes should have increases). Can you asses the consequences on this only effect (firm investment in physical capital) on investment, productivities of labor and capital, and effects on production function (using all equations and graphs).

Answer 1

Answer and Explanation:

increase in investment in physical capital will shift the demand curve for the loanable funds rightwards to D1D1 leading to an increase in investment to increase the productivity of labor and capital in the economy. the increase in productivity will shift the productivity function upwards output to Y'.