Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be
A)lower interest rates and lower investment.
B)lower interest rates and greater investment.
C)higher interest rates and lower investment.
D)higher interest rates and higher investment.

Question

Quizplus · Accepted Answer

When people consume more and save less, the supply of loanable funds decreases, leading to higher interest rates and lower investment.

Suppose the Government Changed the Tax Laws, with the Result