Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.
-Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?
A) The tax code is reformed to encourage greater saving.
B) The tax code is reformed to encourage greater investment.
C) The government starts running a budget deficit.
D) The government starts running a budget surplus.

Question

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?
A) The tax code is reformed to encourage greater saving. 
B) The tax code is reformed to encourage greater investment. 
C) The government starts running a budget deficit. 
D) The government starts running a budget surplus.

Quizplus · Accepted Answer

A reform in the tax code that encourages greater investment would increase the demand for loanable funds, shifting the demand curve from D1 to D2.