The Diagram Below Show the Market for Financial Capital Assuming

question 73

Multiple Choice

The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*. FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS₀ and investment demand is reflected by I₀^D.Now suppose the government implements a revenue-neutral tax policy that encourages investment.What is the effect on the real interest rate?

• A)There is no effect on NS or I^D,and the interest rate remains at i*.
• B)National saving shifts to NS₁,and the real interest rate falls to i₃.
• C)The real interest rate rises because of the decrease in the budget surplus.
• D)The real interest rate falls because of the decrease in the budget surplus.
• E)Investment demand shifts to I₁^D,and the real interest rate rises to i₂.

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Definitions:

Withdrawal

The act of taking money from an account, or the removal of assets or resources, often applicable in banking and partnerships.

Telephone Bill

A telephone bill is a periodic charge levied on individuals or businesses for the use of telecommunication services.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, leading to net profit or loss.