Suppose a Country Has Only a Sales Tax

question 200

Multiple Choice

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

• A)interest rates and the equilibrium quantity of loanable funds rise.
• B)interest rates rise and the equilibrium quantity of loanable funds fall.
• C)interest rates fall and the equilibrium quantity of loanable funds rise.
• D)interest rates and the equilibrium quantity of loanable funds fall.