What fiscal policy action might increase investment and speed economic growth? Explain how the policy action...
What fiscal policy action might increase investment and speed economic growth? Explain how the policy action would work. A fiscal policy action that might increase investment and speed economic growth is ______ , which works by ______ the real interest rate paid by borrowers and ______ the real interest rate earned by savers and suppliers of loanable funds.
A. a decrease in the tax on interest income; lowering;
raising
B. government borrowing; raising; lowering
C. a decrease in the tax on interest income; raising;
lowering
D. government borrowing; lowering; raising
Homework Answers
Answer : The answer is option A.
Tax is a part of fiscal policy actions. When tax rate decrease on interest income then it lowers the real interest rate for borrowers. When interest rate fall then people borrow more and investment more. As a result, investment increase. As tax rate falls for interest income hence the real interest rate increase for savers which increase the earning of savers and loanable fund suppliers. Therefore, option A is correct.
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