Question

Which of the following statements is​ correct?

A.
An increase in the corporate income tax decreases the​ after-tax profitability of investment spending.
This is the correct answer.
B.
Changes in tax laws have no effect on investment spending.
C.
During periods of​ recession, the ability of firms to finance spending on new factories or machinery and equipment increases.
D.
All of the above are correct.

Answer 1

An increase in the corporate income tax decreases the after-tax profitability of investment spending.

Step-by-step explanation:

An increase in the corporate income tax decreases the after-tax profitability of investment spending. This is because the corporate income tax reduces the amount of profit that firms can retain and reinvest in their businesses. When the tax is higher, firms have less capital available for investment, which can lead to a decrease in investment spending and potentially lower overall economic activity.