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.

Question

Zybrea Knight · Accepted Answer

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.

Definitions

Learning Objectives

Learning Objectives

Related questions