Question

Other things held constant, following an decrease in wealth, the real interest rate _____ and desired national savings _______

		rises; declines
		rises; increases
		falls; declines
		falls; increases
		remains the same; remains the same

Other things held constant, following a decrease in the effective tax rate on capital, the real interest rate _____ and desired national savings _______

		rises; declines
		rises; increases
		falls; declines
		falls; increases
		remains the same; remains the same

Answer 1

rises; declines. If there is a decrease in the wealth then consumers who are also investors will not supply funds in the market due to which the supply is affected and the supply curve shifts left. This reduces the amount of National Savings and increases the rate of interest

rises; increases. If tax rate is reduced on capital then it implies that there will be more capital investment and hence more demand for funds. This is going to shift the demand curve to the right which will increase the rate of interest as well as desired savings