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5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarlos, adjust

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5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarlos, adjust the appropriate curve on the graph to help complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of individual scenario. (Note: You will not be graded on any changes you make to the graph.) Demand Supply Supply INTEREST RATE (Percent) Demand LOANABLE FUNDS (Bilions of dollars) Scenario 1: Individual Retirement Accounts (TRAs) 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. Shirt the appropriate curve on the graph to reflect this change This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to spending to and the level of investment 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 Shire the appropriate curve on the graph to reflect the change The implementation of the new tax credit causes the interest rate to and the level of investment 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, Grade It Now Save & Continue

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