When will a change in the tax laws that increases the supply of loanable funds have a bigger effect on investment?
A) when the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic
B) when the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic
C) when both the demand for and supply of loanable funds are more elastic
D) when both the demand for and supply of loanable funds are more inelastic

Question

Quizplus · Accepted Answer

When the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic, a change in the tax laws that increases the supply of loanable funds will have a bigger effect on investment. This is because the increase in supply will lead to a larger decrease in interest rates, which will in turn lead to a larger increase in investment.

When Will a Change in the Tax Laws That Increases