Principles of Macroeconomics 7th Edition

Published by South-Western College
ISBN 10: 1-28516-591-8
ISBN 13: 978-1-28516-591-2

Chapter 13 - Saving, Investment, and the Financial System - Questions For Review: 5

Answer

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

Work Step by Step

If tax codes change to encourage saving the quantity of loan-able 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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