Suppose in some country that the first $5,000 of interest income is exempt from income tax.If the government then removed this exemption
A)the interest rate and investment would rise.
B)the interest rate would rise and investment would fall.
C)the interest rate would fall and investment would rise.
D)the interest rate and investment would fall.

Question

Quizplus · Accepted Answer

If the exemption on the first $5,000 of interest income is removed, individuals who save and invest may find themselves with lower returns on their investments due to having to pay taxes on that income. This may lead to a decrease in investment and supply of loanable funds, leading to a higher interest rate. Therefore, the interest rate would rise and investment would fall.

Suppose in Some Country That the First $5,000 of Interest