What 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

An increase in the tax on interest income would reduce the return on lending, which would discourage lenders from supplying loanable funds. This would cause the supply of loanable funds to shift leftward.

What Would Most Likely Happen in the Market for Loanable