Identify how planned investment will change in each scenario. Please choose from the given below options.

1. Airwings, a commercial airline manufacturer, becomes optimistic about economic conditions after seeing reports of strong growth in consumer spending. Due to Airwings, planned 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. Due to the Fed, planned investment .

3. In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate. Due to the Congress, planned investment .

Options:

O Increase

O Decrease

O will stay the same

1. Airwings, a commercial airline manufacturer, becomes optimistic about economic conditions after seeing reports of strong growth in consumer spending. Due to Airwings, planned investment will increase.  

2. The Federal Reserve announces an end to accommodative monetary policy, and is now implementing policy tools that will increase the real interest rate. Due to the Fed, planned investment will decrease.

3. In an effort to reduce constant budget deficits, Congress announces plans to increase the corporate income tax rate. Due to the Congress, planned investment will decrease.  

Explanation:

1) Due to Airwings, planned investment will increase.

Since the business has a promising future, it will start capacity expansion to cater to consumer demand.

2) Due to the Fed, planned investment will decrease.

A higher real interest rate suggests that borrowing cost is higher for the firms and so that they will lessen the investment in response to that.

3) Due to the Congress, planned investment will decrease.

A lower tax implies that higher profits and firms can pass these benefits to consumers with lower prices, to employees with higher wages and the government with a tax on profit. However, if the rate of the tax itself has been increased then in that case corporate will see higher tax as a dampener in sentiments and they might curtail investment plans.

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