Recently, There Has Been Talk About Reforming the Tax System

Multiple Choice

Recently, there has been talk about reforming the tax system. Some advocate replacing the current income tax with a consumption tax. The income tax taxes interest earned on savings directly, while a consumption tax doesn't. Assuming the demand curve forloanable funds is unchanged, which of the following would most likely occur?

A) a decline in the interest rate and an increase in the quantity of loanable funds demanded and supplied
B) an increase in the interest rate and a decrease in the quantity of loanable funds demanded and supplied
C) no effect on the interest rate, but a decline in the quantity of loanable funds demanded and supplied
D) an increase in both the interest rate and quantity of loanable funds demanded and supplied
E) an increase in the interest rate but no effect on the quantity of loanable funds demanded and supplied