In the U.S., interest income is taxed. Let's assume the tax rate to be 30%.Then, if you lend $100,000 to someone and get paid $100,000 plus $10,000
interest one year later (10% interest rate), you need to pay 30% ×$10, 000 = $3, 000 to the IRS. The remaining $7,000 is your take-home interest income.

Questions:

i. Suppose congress suddenly passed a law that increases interest income tax rate (e.g. from 30% to 50%). 

What is the impact on the demand curve of lending? What is the impact on supply curve?

ii. Based on the supply-demand  what would be the consequence of this law on the equilibrium quantity of lending and the (pre-tax) equilibrium interest rate?
 

(b) 

In the U.S., mortgage interest payments are tax-deductible.1 That is, a mortgage borrower can benefit by paying lower income taxes if she also pays a mortgage.
Question: consider the mortgage lending market. How does the policy of allowing for mortgage interest tax deduction impact the demand and supply curves of mortgage lending?2 What about the impact on the equilibrium quantity of mortgage lending and the equilibrium mortgage interest rate?

(c)

In the U.S., most mortgage repayments are guaranteed directly or indirectly by the Federal government. That is, if you are an investor (lender)
in the mortgage market, you don't have to worry about the mortgage borrow- ers defaulting. In case of a default, the government will pay you.

Question:

 How does this impact the supply curve, demand curve, as well as equilibrium quantity and equilibrium interest rate in mortgage lending?