Suppose a business investment tax credit is introduced into an economy. Other things equal, a result...

Suppose a business investment tax credit is introduced into an economy. Other things equal, a result of this new tax credit tends to be,

	a.	the long-term real interest rate will fall and the quantity exchanged of loanable funds will fall
	b.	the long-term real interest rate will fall and the quantity exchanged of loanable funds will rise
	c.	the long-term real interest rate will rise and the quantity exchanged of loanable funds will fall
	d.	the long-term real interest rate will rise and the quantity exchanged of loanable funds will rise

Expert Solution

Option (d).

An investment tax credit increases business investment, which shifts demand curve for loanable funds to right. This increases both interest rate and quantity of loanable funds.

Rahul Sunny answered 3 years ago

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