Figure 26-3
The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.

-Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Question

Figure 26-3
The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
​ 
-Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Quizplus · Accepted Answer

Moving from a government budget deficit to a surplus would typically contract aggregate demand, while an investment tax credit would encourage investment, expanding aggregate demand. The net effect depends on the relative sizes of these changes. Option C suggests a scenario where the expansion due to the investment tax credit outweighs the contraction from moving to a budget surplus, shifting the economy to a point with higher aggregate demand and potentially higher output or price levels.

Figure 26-3 The Figure Shows Two Demand-For-Loanable-Funds Curves and Two Supply-Of-Loanable-Funds Curves