Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free.This would shift the
A)supply of loanable funds to the right,causing interest rates to fall.
B)supply of loanable funds to the left,causing interest rates to rise.
C)demand for loanable funds to the right,causing interest rates to rise.
D)demand for loanable funds to the left,causing interest rates to fall.

Question

Quizplus · Accepted Answer

By making the first $5,000 of interest income tax-free, investors will have more disposable income to save and invest, increasing the supply of loanable funds. This increase in supply will put downward pressure on interest rates.

Suppose a Government That Taxed All Interest Income Changed Its