Suppose that Congress is considering an investment tax credit, which subsidizes domestic investment. Which of the following accurately describes the effect of an investment tax credit? 1. Real interest rate increases
2. Net capital outflow decreases
3. Exchange rate decreases
4. Trade balance increases
5. National saving increases
6. Domestic investment decreases
As a result of the investment tax credit, domestic goods will become (more or less) expensive for foreigners to purchase.

Answer is given below :

Explanation:

Investment tax credits are an incentive for businesses to invest. They deduct a certain percentage of the investment cost from individuals or businesses from their taxes. These credits are in addition to the general allowance for depreciation.It basically reduces the cost of taking money at every real interest rate. This increases the demand for money, so real interest rates rise.Now an increase in real interest rates will reduce the inflow of net capital.Decreased net capital inflows reduce the supply of dollars in the market for foreign currency exchange, which increases the real exchange rateThis leads to a trade deficit because exports are lower than supply due to the high dollar value, thus reducing the trade balance.National savings will decline because a higher interest rate will motivate people to save more. Domestic investment will declineAs a result, it is becoming increasingly expensive for foreigners to buy home appliances.