The following figure shows the impact of a tax cut on the loanable funds market when the entire tax cut is spent. What if, instead, the entire tax cut had been saved?
a. Draw a diagram of the loanable funds market showing the impact of a tax cut that is entirely saved. (Assume the government is already running
a budget deficit.)
b. What happens to the interest rate after the tax cut? Explain briefly.
c. In the following figure, the tax cut caused consumption spending to crowd out planned investment spending. How does a tax cut that is entirely saved affect the components of total spending?

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Interest Total Supply of Funds (Saving) Rate в 7% AH = T+ = initial Ct н 5% P + G – T2 IP + G - T1 Trillions of 1.75 2.05 2.25 Dollars per Year