Factors that affect equilibrium in the market for loanablefunds For each of the given scenarios, use the graphs to (1) show what happens in the market for loanable funds and (2) help answer the questions that follow. 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 a decrease in the maximum contribution, from $5,000 to $3,000 per year. Market for Loanable Funds D A S A INTEREST RATE LOANABLE FUNDS D A S A1 S A2 50, 50 This change causes savers to supply less loanable funds. Because the quantity of loanable funds supplied is now less than the quantity of loanable funds demanded, there is upward pressure on interest rates. This change in interest rates causes a(n) increase in the quantity of loanable funds demanded. Scenario 2: An investment tax credit effectively lowers the taxes paid by firms that purchase new equipment or build a new manufacturing facility. Suppose the government implements a new investment tax credit. Market for Loanable Funds D A S A INTEREST RATE LOANABLE FUNDS D A S A The implementation of