The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*.
FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS0 and investment demand is reflected by I0D.Now suppose the government implements a revenue-neutral tax policy that encourages investment.What is the effect on the quantity of national saving?
A) There is no effect on NS or ID and the quantity of national saving supplied remains at I*.
B) National saving shifts to
,and the quantity of national saving supplied rises to I2.
C) Investment demand shifts to I1D and the quantity of national saving supplied rises to I1.
D) Investment demand shifts to I1D,national saving shifts to NS1,and the quantity of national saving rises to I3.
E) National saving shifts to
,investment demand shifts to I1D,and the quantity of national saving rises to
.
Correct Answer:
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