As government subsidizes investment, likely with an investment tax credit, the subsidy often applies to only various types of investment. As this question consider the cause of such type of change. Suppose there are two types of investment in the economy: business investment and residential investment. And suppose that the government institutes an investment tax credit only for business investment.
a. Explain how does the policy involve the demand curve for business investment? Also explicate the demand curve for residential investment?
b. Sketch the economy's supply and demand for loan able funds. How does this policy involve the supply and demand for loan able funds? What occurs to the equilibrium interest rate?
c. Compare the old and new equilibrium. How does the policy affect the total quantity of investment? Explain the quantity of business investment? Explain the quantity of residential investment?