What effect will an investment tax credit have on interest rates and the quantity of savings?
A) There will be no effect because investment tax credits only affect the amount of taxes paid by firms.
B) Both interest rates and the quantity of savings will increase.
C) Interest rates will decrease and the quantity of savings will increase.
D) Interest rates will not change,but the quantity of savings will decrease.

Question

Quizplus · Accepted Answer

An investment tax credit makes investment more attractive, leading to increased demand for loanable funds. This increased demand raises interest rates, which in turn encourages more people to save, thus increasing the quantity of savings.

What Effect Will an Investment Tax Credit Have on Interest