Module Six Quiz 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. Shift the appropriate curve on the graph to reect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to fall v and the level ofinvestment spending to increase V . Scenario 2: An investment tax credit effectively lowers the tax blll of any firm that purchases new capital in the relevant time perlod. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of saving to _V - Scenario 3: Initially, the government's budget Is balanced; then the government responds to the conclusion of a war by signicantly reducing defense spending Without changing taxes. This change in spending causes the government to run a budget V , which V national saving- Shift the appropriate curve on the graph to reect this Change. This causes the interest rate to V , V the level of investment spending. 11:39 PM 7 7 41912022