What is the effect of an increase in the tax rate on interest income on the supply of and the demand for loanable funds?
A) The supply curve shifts to the left, while the demand curve remains unchanged.
B) The supply curve shifts to the right, while the demand curve remains unchanged.
C) The supply curve remains unchanged, while the demand curve shifts to the left.
D) The supply curve remains unchanged, while the demand curve shifts to the right.

Question

Quizplus · Accepted Answer

An increase in the tax rate on interest income makes saving less attractive, leading to a decrease in the supply of loanable funds, hence the supply curve shifts to the left. The demand for loanable funds is not directly affected by the tax rate on interest income, so it remains unchanged.

What Is the Effect of an Increase in the Tax