What would 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

Increasing the tax on interest income would make lending less attractive, reducing the supply of loanable funds. This is because savers and lenders would choose to keep their money in alternative, tax-free assets. Therefore, the supply curve for loanable funds shifts to the left.

What Would Happen in the Market for Loanable Funds If