Identify two basic factors that affect investment spending. How does a change in investment spending affect aggregate demand?
What will be an ideal response?
Changes in investment spending may occur as a result of changes in the interest rate (not related to changes in the price level), changes in profit expectations having to do with predictions about future returns on possible projects, changes in business taxes, technological improvements which induce more capital investment, and the degree of existing excess capacity. If investment spending increases, aggregate demand is likely to increase. If investment spending decreases, aggregate demand is likely to decrease.
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Which of the following accurately describes the tax treatment of municipal bonds?
A) All income from municipal bonds is tax free. B) Interest is tax free, but unrealized capital gains are taxable. C) Interest is tax free, but realized capital gains are taxable. D) Interest is taxable, but capital gains are tax free.
When a principal attempts to get an agent to reveal his or her private information, which of the following is occurring?
a. Screening b. Signalling c. Moral hazard d. Adverse selection