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6. Tax systems and saving This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. INTEREST RATE LOANABLE FUNDS S 6 - þ (?)

6. Tax systems and saving This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. INTEREST RATE LOANABLE FUNDS S 6 - þ (?)

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Savings,investment And The Financial System
Section: Chapter Questions
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6. Tax systems and saving This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. INTEREST RATE LOANABLE FUNDS S 6.4. (?)
Transcribed Image Text:6. Tax systems and saving This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. INTEREST RATE LOANABLE FUNDS S 6.4. (?)
A tax law change that successfully encourages saving will interest rates, which leads to investment and economic growth. To understand better how changes in tax laws can affect saving, imagine that Eleanor, a student, plans to save $500 from her summer job buy textbooks next autumn. Eleanor's parents are so impressed with her plans that they offer to pay her an additional 40% interest per month on the money she saves, which means that Eleanor is now earning a large rate of return on her saving. It turns out that Eleanor saves only $400 (before the interest paid by her parents) from her summer job. This means that the effect must be smaller than the effect for Eleanor in this case.
Transcribed Image Text:A tax law change that successfully encourages saving will interest rates, which leads to investment and economic growth. To understand better how changes in tax laws can affect saving, imagine that Eleanor, a student, plans to save $500 from her summer job buy textbooks next autumn. Eleanor's parents are so impressed with her plans that they offer to pay her an additional 40% interest per month on the money she saves, which means that Eleanor is now earning a large rate of return on her saving. It turns out that Eleanor saves only $400 (before the interest paid by her parents) from her summer job. This means that the effect must be smaller than the effect for Eleanor in this case.
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