Question

A decrease in government spending and the enactment of an investment tax credit would definitely cause a. the quantity of loanable funds traded to decrease. b. the interest rate to decrease. c. the interest rate to increase. d. the quantity of loanable funds traded to increase.

Answer 1

The correct answer is option d.

Step-by-step explanation:

A decrease in government spending will reduce the demand for loanable funds. This will cause the demand curve for loanable funds to shift to the left.

The leftward shift in the demand loanable funds will cause the interest rates to decrease. This reduction in the interest rate and investment tax credit will cause the quantity of loanable funds traded to increase.