Suppose the U.S.offered a tax credit for firms that built new factories in the U.S.Then
A)the demand for loanable funds would shift rightward,initially creating a surplus of loanable funds at the original interest rate.
B)the demand for loanable funds would shift rightward,initially creating a shortage of loanable funds at the original interest rate.
C)the supply of loanable funds would shift rightward,initially creating a surplus of loanable funds at the original interest rate.
D)the supply of loanable funds would shift rightward,initially creating a shortage of loanable funds at the original interest rate.

Question

Quizplus · Accepted Answer

The tax credit offered by the U.S. government would increase the incentive for firms to invest in new factories, which would lead to a higher demand for loanable funds. As a result, the demand for loanable funds would shift rightward. Initially, there would be a shortage of loanable funds at the original interest rate, as firms would be willing to pay a higher interest rate to secure the necessary funds for their investments. This shortage would push up the interest rate until it reached a new equilibrium point where the demand for and supply of loanable funds are equal.