Explain the ways in which the government can persuade private businesses to invest more in order to speed up the process of capital formation?
Real interest rates: The amount that businesses invest depends on the real interest rate they pay to borrow funds. The lower the real rate of interest, the more investment there will be.
Tax provisions: The government also can influence investment spending by altering provisions of the tax code.
Technical change: If the government can figure out how to spur technological progress, those same policies will probably boost investment.
Growth of demand: Rapid growth itself can induce businesses to invest more. High levels of sales and expectations of rapid economic growth create an atmosphere conducive to investment.
Political stability and property rights: Business executives contemplating a long-term investment want assurances that their property will not be taken from them for capricious or political reasons.
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According to the BEA, in the second quarter of 2012 purchases of new residential structures rose by 8.9 percent. Using the expenditure approach, this change increases
A) gross private domestic investment. B) government expenditure on goods and services. C) net exports of goods and services. D) personal consumption expenditures.
In a monopolistically competitive industry
A) firms can make an economic profit in the long run because of barriers to entry. B) the firms can never make an economic profit. C) if firms are making an economic profit, new firms enter the industry. D) firms can make an economic profit in the long run because of product differentiation.