If taxes are reduced with no change in government spending, and people save all the money from the tax cut,
A) the demand for loanable funds will increase and the interest rate will increase.
B) the demand for loanable funds will increase and the interest rate will remain constant.
C) the supply of loanable funds will increase and the interest rate will decrease.
D) neither the demand nor the supply of loanable funds will change.

Question

Quizplus · Accepted Answer

When people save all the money from a tax cut, the supply of loanable funds increases because there is more money available for lending, which typically leads to a decrease in the interest rate.

If Taxes Are Reduced with No Change in Government Spending