6. Tax systems and saving This question addresses the impact of saving on an economy by examining vwhat happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shovs 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. LOANABLE FUNDS A tax law change that successfully encourages saving vill interest rates, which leads to investment and economic growth. To understand better how changes in tax laws can affect saving, imagine that Raphael, a student, plans to save $450 from his summer job to buy textbooks next autumn. Raphael's parents are so impressed with his plans that they offer to pay him an additional 35% interest per month on the money he saves, which means that Raphael is now earning a large rate of return on his saving. It turns out that Raphael saves only $400 (before the interest paid by his parents) from his summer job. This means that the v effect must be smaller than the v effect for Raphael in this case. INTEREST RATE
6. Tax systems and saving This question addresses the impact of saving on an economy by examining vwhat happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shovs 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. LOANABLE FUNDS A tax law change that successfully encourages saving vill interest rates, which leads to investment and economic growth. To understand better how changes in tax laws can affect saving, imagine that Raphael, a student, plans to save $450 from his summer job to buy textbooks next autumn. Raphael's parents are so impressed with his plans that they offer to pay him an additional 35% interest per month on the money he saves, which means that Raphael is now earning a large rate of return on his saving. It turns out that Raphael saves only $400 (before the interest paid by his parents) from his summer job. This means that the v effect must be smaller than the v effect for Raphael in this case. INTEREST RATE
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Tax systems and saving
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
lawis 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 (5), or
both.
D
LOANABLE FUNDS
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 Raphael, a student, plans to save $450 from his summer job to buy
textbooks next autumn. Raphael's parents are so impressed with his plans that they offer to pay him an additional 35% interest per month on the
money he saves, which means that Raphael is now earning a large rate of return on his saving. It turns out that Raphael saves only $400 (before the
interest paid by his parents) from his summer job. This means that the
effect must be smaller than the
effect for
Raphael in this case.
INTEREST RATE
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