Saving, Investment and the Financial System Interest Work It Out: Question 1 of 1 rate arning Use the market for loanable funds shown in the accompanying diagram to explain what happens to private savings, private investment spending, and the interest rate if each of the following events occur. Assume that there are no capital inflows or outflows. E D Quantity of loanable funds If the government reduces the size of its deficit to zero, there will be in the of loanable funds. Reducing deficits to zero will cause interest rates to At any given interest rate, if consumers decide to save more, and the government budget remains unchanged, there will be in the of loanable funds. This will cause the interest rate to