An increase in the tax on interest income_________ the supply of loanable funds and _________the equilibrium investment.

Question

Quizplus · Accepted Answer

An increase in the tax on interest income would decrease the after-tax return on savings and investments, leading to a decrease in the supply of loanable funds. This decrease in supply would lead to an increase in the equilibrium interest rate, which in turn, would decrease the amount of investment demanded. Therefore, the correct option is A) decreases; decreases.

An Increase in the Tax on Interest Income_________ the Supply