CHAPTER 25SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM569billion to $1,600 billion. That is, the shift in the supply curve moves the marketequilibrium along the demand curve. With a lower cost of borrowing, householdsand firms are motivated to borrow more to finance greater investment. Thus, if achange in the tax laws encouraged greater saving, the result would be lower interest ratesand greater investment.Although this analysis of the effects of increased saving is widely acceptedamong economists, there is less consensus about what kinds of tax changes shouldbe enacted. Many economists endorse tax reform aimed at increasing saving in or-der to stimulate investment and growth. Yet others are skeptical that these taxchanges would have much effect on national saving. These skeptics also doubt theequity of the proposed reforms. They argue that, in many cases, the benefits of thetax changes would accrue primarily to the wealthy, who are least in need of tax re-lief. We examine this debate more fully in the final chapter of this book.
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