Author Question: Suppose a government tax cut increases disposable income. If there is no change in the government ... (Read 21 times)

arivle123 · **on:** Jun 29, 2018

Suppose a government tax cut increases disposable income. If there is no change in the government deficit or surplus, what effect would this tax cut have on the supply of loanable funds and the demand for loanable funds? What will happen to the real

interest rate?

Question 2

Explain which of the following government policies would tend to make more sense in terms of consumer protection: The licensure of interior designers or the licensure of pharmacists.

What will be an ideal response?

trampas · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

By increasing disposable income, the tax cut will increase saving. The supply curve of loanable funds will shift rightward. The real interest rate will decrease, the quantity of loanable funds will increase, and there will be no change in the demand for loanable funds curve.

Answer to Question 2

It is likely that there is little consumer benefit from licensing interior designers. If a consumer does not like the taste or advice of an interior designer, it is easy to find another interior designer who is more in sync with the consumer's tastes, and there seems to be little health or safety benefits to licensure. Licensing pharmacists makes more sense because of the significant health issues that could arise due to the nature of correctly or incorrectly dispensing pharmaceuticals.