Firms care about their after-tax rate of return on investment projects.
The graph on the right represents the market for loanable LOADING... funds. The initial demand and supply curves are Upper D 1D1and Upper S 1S1, respectively.
Use the line drawing tool to shift the demand and or supply curve to illustrate the effect of an increase in business taxes. (For simplicity, assume no change in the federal budget deficit or budget surplus). Properly label this new line.
Carefully follow the instructions above, and only draw the required objects.

What will be the effect of an increase in business taxes on the quantity of investment by firms and the economy's capital stock in the future?
When business taxes increase, the equilibrium interest rate
decreases
and the equilibrium quantity of loanable funds
decreases
.

The quantity of investment will decrease and the economy's future capital stock will decrease.