If the Supply of loanable funds is very inelastic (steep) Which policy would likely increase saving and investment the most ?
Correct answer: A. a reduction in the budget deficit
- A. a reduction in the budget deficit
- B. an increase in the budget deficit
- C. an investment tax credit
- D. None of the above
Explanation
Reducing the budget deficit raises national saving and shifts the supply of loanable funds right, increasing investment. With a very inelastic supply curve, an investment tax credit mainly raises the interest rate and produces only a small increase in investment.
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