Question

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the:___________ a) demand for and the supply of loanable funds to the right. b) demand for and the supply of loanable funds to the left. c) supply of loanable funds to the right and the demand for loanable funds to the left. d) None of the above is correct.

Answer 1

a. The demand for loanable funds would shift left.

Step-by-step explanation:

Investment tax credit is a form of tax relief for businesses where a business can deduct part of their investment cost from their taxes. They are tax incentive that promotes business investment.

If the government revokes investment tax credit businesses will have reduced investment as a result.

Businesses will less willing to borrow funds for investment purposes because when they compare the return on investment and the interest rate paid on loanable finds, it will not be an attractive option to get funds.