(Figure: The Market for Loanable Funds III) Use Figure: The Market for Loanable Funds III. Suppose the government in a closed economy finances deficits by selling bonds and that it decreases defense spending by $200 billion. This decrease in government spending will encourage in additional private investment spending. Interest rate (%) 30 27 24 21 18 15 m D O 200 400 600 800 1,000 1,200 Quantity of loanable funds