What would happen, all else equal, in the market for loanable funds if the government were to decrease the tax rate on interest income?
A)There would be an increase in the equilibrium quantity of loanable funds.
B)There would be a reduction in the equilibrium quantity of loanable funds.
C)There would be no change in the equilibrium quantity of loanable funds.
D)The change in loanable funds is uncertain.

Question

Quizplus · Accepted Answer

Decreasing the tax rate on interest income makes saving more attractive because savers get to keep more of their interest earnings. This increases the supply of loanable funds, leading to a lower interest rate and an increase in the equilibrium quantity of loanable funds as more people are willing to lend their money.

What Would Happen, All Else Equal, in the Market for Loanable