Asked by Yakelin Zamora on Apr 30, 2024
Verified
If Congress were to pass a law exempting interest on saving from taxation,the:
A) supply of loanable funds would decrease and the equilibrium interest rate rise.
B) supply of loanable funds would increase and the equilibrium interest rate fall.
C) demand for loanable funds would increase and the equilibrium interest rate rise.
D) equilibrium interest rate would be unaffected.
Equilibrium Interest Rate
The interest rate at which the demand for money balances exactly equals the supply of money in circulation, leading to economic equilibrium.
Taxation
The process by which governments charge fees on individuals and corporations to fund public spending.
- Analyze the impact of taxation and government policies on savings and investment.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
B
Explanation :
Exempting interest on savings from taxation would make saving more attractive to individuals, increasing the supply of loanable funds. With a higher supply of loanable funds available, the equilibrium interest rate would fall as lenders compete to attract borrowers. Therefore, the correct choice is B.
Learning Objectives
- Analyze the impact of taxation and government policies on savings and investment.
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