Question

Describe a change in the U.S. tax code that might increase private saving but bot impact overall operations of the government. if this policy were implemented, how would this impact the market for loanable funds? Remember, the intent is to not impact the money availabe to operate, service the debt, and pay outlays to citizens or parties residing in the country.

Answer 1

A tax code is used to determine income tax contributions. In United States internal revenue code is the domestic portion of federal statutory tax laws. It is a federal government document which explains the actual rules individuals as well as business must follow while paying taxes to the government. The implementing agency is Internal Revenue Service. It is covering income taxes, payroll taxes, estate taxes, gift taxes, excise taxes, etc.

Prior to the second half od 18th century tax laws were not codified. Inernarrnal Revenue Code of 1939 and Internal Revenue Code of 1954 are the most important. The 1939 code was replaced by 1954 code uner the title artticle 26 of the United states code.  

State rules for determining taxable icome often differ from federal rules.

The fact is that tax on the interested income hleps only to decrease the benefit of saving. The decrease in the benefit of saving makes it difficult to increase the supply of loanable funds. This also increases the decrease in equilibrium interest rate.  

Loanable Funds Theory

All forms of credits such as loans, bonds, savings deposits, etc. are included in loanable funds. According to this theory the interest rate is determined by the demand for and supply of loanable funds.  

Most common sources of loanable funds are savings of individuals and instituitions. If an individual opens a savings bank account, that means he is authorizing the bank for the utilization of his money for a certain % of interest for a limited period of time.