Suppose local governments throughout the United States increase their tax on business inventories. What would you expect to happen to U.S. investment? Why?

Answer:

The investment will fall.

Explanation:

The U.S investment will fall because the increase in the tax will reduce its corporate profit and gross domestic investment will fall. Since the primary motive of every firm or company is to earn profit but if their profit decreases then the investor will not invest. Moreover, the company or investor will choose a different country where it can make more profit. Therefore, a rise in tax rate demotivates the investment.