Favorable tax treatment of business investment

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Suppose we started out at the steady state capital stock in the basic Solow growth model. If there subsequently were an increase in the demand for loanable funds due to more favorable tax treatment of business investment, ceteris paribus (i.e., holding other factors constant), then (as we move to the new steady state over time) we would expect to see

A) economic growth rates turn negative as we move toward the new steady state and the nation's capital stock to decrease from its current level.

B) economic growth rates turn positive as we move toward the new steady state and the nation's capital stock to grow from its current level.

C) economic growth rates turn negative as we move toward the new steady state and the nation's capital stock to increase from its current level.

D) economic growth rates turn negative as we move toward the new steady state and the nation's capital stock to grow from its current level.

E) economic growth rates turn positive as we move toward the new steady state and the nation's capital stock to decrease from its current level.

Reference no: EM131956919

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