Suppose that government of Pakistan is considering an investment tax credit. 

i. How would this policy affect national saving, domestic investment, net capital outflow, the real interest rate, the real exchange rate, and the trade balance? Use graphs to explain your answer. 

ii. The representatives of several large exporter firms oppose the policy. Why might that be the case? Explain in words.  

b. “When a nation is running a trade surplus, capital is flowing out of the country.” Do you agree with the statement? Explain your choice.  

c. Most of the time of its history, Pakistan has faced trade deficit. Would you like to point out factors on which international trade of Pakistan may depend?

Answer rating: 100% (QA)

An increase in investment will shift the investment curve to right increasing interest rate and increasing equilibrium saving and investment As interest rate increases net capital outflow decreases wh... View the full answer