Question

Suppose the U.S offered a tax credit for firms that built new factories in the U.S. Then __________a The demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.b The demand for loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate.c The supply of loanable funds would shift right ward, initially creating a surplus of loanable funds at the original interest rate.d The supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.

Answer 1

Answer:

Option (b) is correct.

Explanation:

When the united states offered a tax credit to the firms that built the new factories then this will increase the demand for loanable funds because every firm wants to built a new factory, so that they are eligible for the tax credit given by the U.S.

This increase in the demand for loanable funds at the ongoing interest rate would shift the demand curve of loanable funds rightwards and this economy is experiencing a situation where the demand of loanable funds is greater than the supply. This will create a shortage of loanable funds.