An increase in the tax on interest income ________ the supply of loanable funds and ________ the equilibrium investment.

Question

Quizplus · Accepted Answer

An increase in the tax on interest income decreases the supply of loanable funds because it reduces the net return to savers, leading to less savings. A decrease in the supply of loanable funds leads to higher interest rates, which in turn decreases equilibrium investment.

An Increase in the Tax on Interest Income ________ the Supply