Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 26 - Part IX - Saving, Investment, and the Financial System - Questions for Review - Page 566: 5

Answer

Changes in a tax code that would help to increase private saving will allow people to protect their savings from taxation. Such a thing would increase the supply of loanable funds, lower interest rate, and increase investment.

Work Step by Step

If tax codes change to encourage saving the quantity of loanable funds supplied increase so the interest rate must fall then firms will likely make more investments due to low borrowing costs.
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