Questions on Loanable Funds

If a reform of tax laws encourages greater saving, the result would be

• Higher interest rates and greater investment

• Higher interest rates and less investment

• Lower interest rates and greater investment

• Lower interest rates and less investment

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

• The supply of loanable funds would shift right

• The demand for loanable funds would shift right

• The supply of loanable funds would shift left

• The demand for loanable funds would shift left

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

• and quantity of loanable funds would be lower

• and quantity of loanable funds would be higher

• would be higher and the equilibrium quantity of loanable funds would be lower

• would be lower and the equilibrium quantity of loanable funds would be higher

Suppose that a country has only a sales tax. Now suppose that it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

• interest rates and the quantity of loanable funds rise

• interest rates rise and the quantity of loanable funds fall

• interest rates fall and the quantity of loanable funds rise

• interest rates and the quantity of loanable funds fall

Suppose that a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

• supply for loanable funds right, making interest rates fall

• supply for loanable funds left, making interest rates rise

• demand for loanable funds right, making the interest rate rise

• demand for loanable funds left, making the interest rate fall

Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?

• The demand for loanable funds would shift left

• The supply of loanable funds would shift left

• The demand for loanable funds would shift right

• The supply of loanable funds would shift right

A budget surplus:

(think in terms of supply)

• raises the interest rate and investment

• reduces the interest rate and investment

• raises the interest rate and reduces investment

• reduces the interest rate and raises investment

A budget deficit:

(think in terms of supply)

• raises the interest rate and investment

• reduces the interest rate and investment

• raises the interest rate and reduces investment

• reduces the interest rate and raises investment

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living

• True

• False

If people become less optimistic about the future earnings of the Hyde Park Jazz Studio, the price of stock in the company will fall

• True

• False