Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%.

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 to and the level of investment spending to .