Question

Identify how planned investment will change in each scenario. 1) Airwings, a commercial airline manufacturer, becomes optimistic about economic conditions after seeing reports of strong growth in consumer spending. 2) The Federal Reserve announces an end to accommodative monetary policy and is now implementing policy tools that will increase the real interest rate. 3) In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate.4) A major recession has reduced consumption spending, which has hurt profit levels for Aston-Benz, a high-end car manufacturer.

Answer 1

1) Increase Investment

2), 3), 4) Decrease Investment

Step-by-step explanation:

1) Airwings, a commercial airline manufacturer, becomes optimistic about economic conditions after seeing reports of strong growth in consumer spending : Expected increase in demand & spending implies that Airline company increases investment

2) The Federal Reserve announces an end to accommodative monetary policy and is now implementing policy tools that will increase the real interest rate : Increase in real interest by Federal reserve policies makes the borrowed funds more expensive, so it reduces investment

3) In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate : Increase in tax rate reduces net disposable income with public, so it decreases investment spending

4) A major recession has reduced consumption spending, which has hurt profit levels for Aston-Benz, a high-end car manufacturer : Reduced consumption spending implies that investors have less incentive, so investment reduces