How Would the Equilibrium Interest Rate Respond to a Change

question 25

Multiple Choice

How would the equilibrium interest rate respond to a change from an income tax to a consumption tax?

• A)The equilibrium interest rate would rise.
• B)The equilibrium interest rate would fall.
• C)The equilibrium interest rate would be unaffected.
• D)The equilibrium interest rate may rise or fall based on whether the demand or supply of loanable funds changes.

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Definitions:

Federal Reserve System

The Federal Reserve System is the central banking system of the United States, responsible for monetary policy, regulation of financial institutions, and provision of financial services.

Monetary Policy

Government actions to increase or decrease the money supply and change banking requirements and interest rates to influence bankers’ willingness to make loans.

United States

A country located in North America, known for its strong economy, diverse population, and democratic government.

Gains in Productivity

refer to increases in the efficiency of production processes, resulting in more output per unit of input over time.