Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%.
Shift the appropriate curve on the graph to reflect this change.
This change in the tax treatment of saving causes the equilibrium interest rate in the market for loan able funds to _(Fall/rise)___ and the level of investment spending to ___(decrease/increase)_____ .
An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government implements a new investment tax credit.
Shift the appropriate curve on the graph to reflect this change.
The implementation of the new tax credit causes the interest rate to ____(fall/rise)____ and the level of investment to___(fall/rise)____ .
Initially, the government's budget is balanced, then the government responds to the conclusion of a war by significantly reducing defence spending without changing taxes.
This change in spending causes the government to run a budget____(deficit/surplus)____ , which___(increases/decreases)____ national saving.
Shift the appropriate curve on the graph to reflect this change.
This causes the interest rate to ___(fall/rise)____ , ___(increasing/crowding out)____ the level of investment spending.