scenario 1:

dropdown 1(less/more)

2(greater than/less than)

3(downward/upward)

4(decrease/increase)

scenario 2:

1(less/more)

2(greater than/ less than)

3(downward/upward)

4(decrease/increase)

For each of the given scenarios, use the graphs to (1) show what happens in the market for loanable funds and (2) helo answer the questions that follow Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at depository Institutions. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income from 20% to 95% Market for Loanable Fundo -O INTEREST RATE c LOANABLE FUNDS This change causes savers to supply of loanable funds demanded, there is quantity of loanable funds demanded. loanable funds. Because the quantity of loanable funds supplied is now pressure on interest rates. This change in interest rates causes a(n) the quantity in the 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 repeals a previously existing investment tax credit A Market for Loanable Funds DA -0- INTEREST RATE d LOANABLE FUNOS The repeal of a previously existing tax credit causes borrowers to demand the quantity of loanable funds supplied, there is causes an) in the quantity of loanable funds supplied. loanable funds. Because the quantity of loanable funds demanded is pressure on interest rates. This change in interest rates