Question

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.

Answer 1

Imagine that the government adjusted the tax laws so that it would encourage people to spend more and conserve less. Higher interest rates and fewer investments would be the effects of using the loanable money concept.

Tell us about your interests.

Interest is the amount paid over and above the original amount to a lender or depositor by a borrower or deposit-taking financial institution at a predetermined rate in the domains of finance and economics (the amount borrowed). It differs from any fees the borrower may be required to pay to the lender or another party. It also differs from dividends, which are paid out to shareholders (owners) by a company from its profit or reserve, but not at a fixed rate predetermined in advance. Instead, it is paid out on a pro rata basis as a portion of the reward received by risk-takers in business when the revenue earned exceeds the total costs.

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