Asked by ayush kumar on May 09, 2024
Verified
Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then the
A) demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
B) demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
C) supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
D) supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
Tax Credit
A tax incentive which allows taxpayers to subtract the amount of the credit from the total they owe to the state.
Loanable Funds
Money available for lending and borrowing, determined by the supply of savings and demand for loans.
Rightward
Used to describe movement towards the right, often in the context of shifts in supply or demand curves in economic graphs.
- Illustrate the effect of governmental policies and tax regimes on the dynamics of the loanable funds market.
- Assess the determinants and repercussions of fluctuations in the supply and demand curves for loanable funds.
Verified Answer
LS
Lindsay StoopsMay 15, 2024
Final Answer :
B
Explanation :
The tax credit incentivizes firms to build new factories, increasing their demand for loans to finance these projects. This increased demand for loanable funds shifts the demand curve rightward, leading to a shortage of loanable funds at the original interest rate, as the quantity demanded exceeds the quantity supplied at that rate.
Learning Objectives
- Illustrate the effect of governmental policies and tax regimes on the dynamics of the loanable funds market.
- Assess the determinants and repercussions of fluctuations in the supply and demand curves for loanable funds.