Which of the following would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?
A)The supply of loanable funds would shift right.
B)The demand for loanable funds would shift right.
C)The supply of loanable funds would shift left.
D)The demand for loanable funds would shift left.

Question

Quizplus · Accepted Answer

Increasing the tax on interest income reduces the after-tax return on investment for lenders, causing them to supply less loanable funds. This shift to the left in the supply of loanable funds would result in a higher equilibrium interest rate and a lower quantity of funds borrowed and lent.

Which of the Following Would Most Likely Happen in the Market