The only province not currently collecting a sales tax is Alberta. What is a likely result from the recently elected government's proposal to reduce income taxes and introduce a sales tax?
A) The equilibrium interest rate and investment would both increase.
B) The supply of loanable funds would shift left
C) The standard of living would eventually rise.
D) The equilibrium interest rate would decrease and investment would increase.

Question

Quizplus · Accepted Answer

Introducing a sales tax would increase government revenue, which would allow them to reduce income taxes. This reduction in income taxes would increase disposable income and consumer demand, which would lead to an increase in investment. As a result, the equilibrium interest rate would decrease and investment would increase.

The Only Province Not Currently Collecting a Sales Tax Is