Suppose the Government Changed the Tax Laws, with the Result

question 173

Multiple Choice

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

• A)lower interest rates and lower investment.
• B)lower interest rates and greater investment.
• C)higher interest rates and lower investment.
• D)higher interest rates and higher investment.

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Definitions:

Demand Curve

A graphical representation that shows the inverse relationship between the price of a good or service and the quantity demanded by consumers.

Perfect Competitor

An entity in a highly competitive market where firms sell homogeneous products, have no control over market price, and where there is free entry and exit of firms.

Elastic Demand Curve

Represents a situation where the quantity demanded of a good or service significantly changes in response to a change in price.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good that consumers are willing to purchase at various prices.