If Taxes Are Reduced with No Change in Government Spending

question 53

Multiple Choice

If taxes are reduced with no change in government spending, and people save all the money from the tax cut,

• A) the demand for loanable funds will increase and the interest rate will increase.
• B) the demand for loanable funds will increase and the interest rate will remain constant.
• C) the supply of loanable funds will increase and the interest rate will decrease.
• D) neither the demand nor the supply of loanable funds will change.

---

Definitions:

Order Fulfillment Department

A division within a company responsible for processing customer orders and ensuring products are delivered to customers efficiently and accurately.

Variable Costs

Costs that vary in direct proportion to the level of production or business activity.

Fixed Costs

Costs that do not vary with the level of production or sales, such as salaries, rent, and insurance.

Logistics Department

The division within a company that is responsible for the management of the movement of goods and materials.