Question

Suppose that the US offered a tax credit for firms who would build new factories in the US. Then, a the supply of loanable funds would shift right, initially creating a surplus of loanable funds at the original interest rate. b the supply of loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate. c the demand for loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate. d the demand for loanable funds would shift right, initially creating a surplus of loanable funds at the original interest rate.

Answer 1

Answer:

c. the demand for loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate.

Explanation:

In this example, we learn of an imaginary situation in which the United States offers a tax credit for firms that decide to build new factories in the country. If these were to happen, placing a factory in the United States would seem a good investment for most companies. Therefore, they might want to gain access to loanable funds, which means that the demand for this would increase. An increase in demand would most likely create a shortage of loanable funds at the original interest rate.