The supply of loanable funds would shift to the right if either
A)tax reforms encouraged greater saving or the budget deficit became smaller.
B)tax reforms encouraged greater saving or investment tax credits were increased.
C)the budget deficit became larger or investment tax credits were increased.
D)the budget deficit became larger or tax reforms discouraged saving.

Question

Quizplus · Accepted Answer

Tax reforms that encourage greater saving would increase the supply of loanable funds, as savers would be willing to lend more money. Similarly, if the budget deficit became smaller, there would be less need for the government to borrow, freeing up loanable funds. Increasing investment tax credits, as in choice B, would stimulate investment and increase the demand for loanable funds, not the supply. The scenarios in choice C and D would reduce the supply of loanable funds: a larger budget deficit would increase the government's demand for borrowing, and tax reforms that discourage saving would reduce the willingness of savers to lend.

The Supply of Loanable Funds Would Shift to the Right