Scenario 2: An investment tax credit effectively lowers the taxes paid by firms that purchase new equipment or build a new manufacturing facility. Suppose the government implements a new investment tax credit.

The implementation of a new tax credit causes borrowers to demand __(less or more)__ loanable funds. Because the quantity of loanable funds demanded is now __(greater than or less than)__ the quantity of loanable funds supplied, there is __(downward or upward)__ pressure on interest rates. This change in interest rates causes a(n)__(decrease or increase)__ in the quantity of loanable funds supplied.

Market for Loanable Funds LOANABLE FUNDS