If the government were to simultaneously cut the personal income tax and the corporate profits tax, the equilibrium interest rate
A)would fall.
B)would rise.
C)would be unaffected.
D)might either rise or fall.

Question

Quizplus · Accepted Answer

When the government cuts both personal income tax and corporate profits tax, it can lead to increased investment and consumption demand. This can put upward pressure on interest rates due to higher demand for funds. However, if the tax cuts also stimulate savings by increasing disposable income, this could increase the supply of loanable funds, potentially lowering interest rates. Therefore, the effect on the equilibrium interest rate could go either way, depending on the relative magnitudes of these effects.

If the Government Were to Simultaneously Cut the Personal Income