Question

Demand Supply Supply INTEREST RATE (Percent) Demand LOANABLE FUNDS (Billions of dollars) Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is an increase in the maximum contribution, from $5,000 to $8,000 per year. Shift the appropriate curve on the graph to reflect this change. and the level of This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to investment spending to Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to and the level of saving to Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget which national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to the level of investment spending.

Answer 1

supply curve of to loanable funds the right. . This shifts supply fall Scenario 2 demand rise New tax loanable credit funds. ineseases : for the Rise & the level of savings to rise

surplus which Scenarion 3 : Government to run a budget ineseases nationed saving This increases supply of cloanable funds. Interest rate do decrease & increase level of inestet