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

Question

Quizplus · Accepted Answer

A decrease in the tax rate on interest income would increase the after-tax return on savings, encouraging more people to save, thus shifting the supply of loanable funds to the right. The demand for loanable funds would likely remain unchanged as it is not directly affected by the tax rate on interest income.

Which of the Following Would Most Likely Happen in the Market