Between 2000 and 2005, Finland increased its tax on interest income. As a result, the supply curve for loanable funds shifted ________ and the tax wedge ________.
A) leftward; increased
B) rightward; increased
C) leftward; decreased
D) rightward; decreased

Question

Quizplus · Accepted Answer

When Finland increased its tax on interest income, it made saving less attractive, leading to a decrease in the supply of loanable funds, which is represented by a leftward shift of the supply curve. Additionally, the tax wedge, which is the difference between what borrowers pay and what lenders receive, increased because of the higher tax on interest income.

Between 2000 and 2005, Finland Increased Its Tax on Interest