Which of the following leads to a higher real interest rate?
Choose 1 answer:
(A) An investment tax credit
(B) An increase in saving behavior.
(C) Less investment by firms.
(D) More savings from foreign countries.
(E) A decrease in the desire to borrow money.

Question

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To determine which option leads to a higher real interest rate, we need to analyze the impact of each option on the supply and demand for loanable funds. ‖ ‖ step 2 ⋮ An investment tax credit (Option A) increases the demand for loanable funds as firms are incentivized to invest more. This typically raises the real interest rate. ‖ ‖ step 3 ⋮ An increase in saving behavior (Option B) increases the supply of loanable funds, which generally lowers the real interest rate. ‖ ‖ step 4 ⋮ Less investment by firms (Option C) decreases the demand for loanable funds, which typically lowers the real interest rate. ‖ ‖ step 5 ⋮ More savings from foreign countries (Option D) increases the supply of loanable funds, which generally lowers the real interest rate. ‖ ‖ step 6 ⋮ A decrease in the desire to borrow money (Option E) decreases the demand for loanable funds, which typically lowers the real interest rate. ‖ ∻Answer∻ ***A*** ∻Key Concept∻ ⚹Investment tax credit increases demand for loanable funds⚹ ∻Explanation∻ ⚹An investment tax credit incentivizes firms to invest more, increasing the demand for loanable funds and thus raising the real interest rate.⚹◊What statistical analysis could be used to determine the impact of different factors on the real interest rate?⍭ Generate me a similar question◊

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