Assume the government introduces a tax on your savings accounts (this includes all online savings accounts)....
Assume the government introduces a tax on your savings accounts (this includes all online savings accounts). Explain this effect has on the market for loanable funds using a diagram. What happens to equilibrium quantity of loanable funds and equilibrium real interest rates?
Homework Answers
The tax on savings accounts causes people to decrease saving. Lower saving shifts supply curve leftward, increasing interest rate and decreasing quantity of loanable funds.
In following graph, D0 and S0 are initial demand and supply curves for loanable funds, intersecting at point A with initial interest rate r0 and quantity of loanable funds Q0. As result of the tax, S0 shifts left to S1, intersecting D0 at point B with higher interest rate r1 and lower quantity of loanable funds Q1.
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Assume the government introduces a tax on your savings accounts
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