What Is the Effect of an Increase in the Tax

question 22

Multiple Choice

What is the effect of an increase in the tax rate on interest income on the supply of and the demand for loanable funds?

• A) The supply curve shifts to the left, while the demand curve remains unchanged.
• B) The supply curve shifts to the right, while the demand curve remains unchanged.
• C) The supply curve remains unchanged, while the demand curve shifts to the left.
• D) The supply curve remains unchanged, while the demand curve shifts to the right.

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Definitions:

Financial Asset

Any asset that is cash, an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument.

Debt Securities

Financial instruments representing a loan made by an investor to a borrower, typically involving periodic interest payments and the return of the principal at maturity.

Life Insurance Reserves

Funds that life insurance companies are required to set aside to ensure they can meet future obligations to policyholders.

Pension Reserves

Funds set aside by an organization to meet future pension liabilities for its employees.