When the supply curve for loanable funds is highly inelastic (steep), which policy is most effective at boosting both saving and investment?

Show Answers

Decreasing the government's budget deficitRaising the government's budget deficitImplementing a tax credit for investmentsNo policy would significantly affect saving or investment

Explanation

Reducing the budget deficit (Option A) is the most effective policy because when the supply of loanable funds is inelastic, lowering the deficit frees up funds for private saving and investment. Increasing the deficit or offering investment tax credits are less effective under these conditions, and none of the policies would be ineffective as suggested in Option D.