During the financial crisis it was proposed that firms be provided with a tax credit for investment projects.Such a tax credit would
A)shift both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange right.
B)shift the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency exchange left.
C)shift the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency exchange right.
D)shift both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange left.

Question

Quizplus · Accepted Answer

A tax credit for investment projects would incentivize firms to invest more. This would increase the demand for loanable funds, shifting the demand curve right. However, if the tax credit was funded through government borrowing, it would increase the supply of dollars in the market for foreign-currency exchange, shifting the supply curve left. Therefore, the correct answer is B, which shows a rightward shift in the demand for loanable funds and a leftward shift in the supply of dollars in the market for foreign-currency exchange.

During the Financial Crisis It Was Proposed That Firms Be