If supply is upward-sloping and demand is downward sloping, what happens to the equilibrium real, risk-free interest rate and quantity of real loanable funds per time period if there is a decrease in government deficits:
a. The real risk-free interest rate rises and the quantity per time period falls.
b. The real risk-free interest rate rises and the quantity per time period rises.
c. The real risk-free interest rate falls and the quantity per time period falls.
d. The real risk-free interest rate falls and the quantity per time period rises.
e. The real risk-free interest rate falls and the quantity per time period is uncertain.
.C
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What will be an ideal response?
Proportional income taxation is distorting because
A) people do all they can to avoid paying taxes. B) the competitive equilibrium is not Pareto optimal. C) firms do all they can to avoid paying taxes. D) the government budget constraint does not hold.