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 an increase in the maximum contribution, from $5,000 to $8,000 per year.

Shift 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 tofall and the level of investment spending toincrease .

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.

Shift the appropriate curve on the graph to reflect this change.

The implementation of the new tax credit causes the interest rate to and the level of saving 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.