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Question
Statistics
Posted 6 months ago

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.
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Answer from Sia
Posted 6 months ago
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.

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