Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.

-Refer to Figure 8-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Question

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
 
-Refer to Figure 8-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Quizplus · Accepted Answer

With the enactment of an investment tax credit, the supply of loanable funds would shift to the right, from S1 to S2, leading to a decrease in the equilibrium interest rate from r1 to r2. The government budget going from deficit to surplus would also reduce the demand for loanable funds, shifting the demand curve from D1 to D2. The combination of these two shifts would result in a movement from Point B to Point F.