(Solved): 5. The market for loanable funds and government policy The following graph shows the loanable funds ...

5. The market for loanable funds and government policy The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenarlo to the next. (Note: You wil not be graded on any changes you make to the graph.) Scenario it Individual Retirement Accounts (IRAs) allow workers to sheiter a portion of their income from taxation. Suppose the maximum annual contribution to accounts of this bype is $$\$6,000$$ per person. Now suppose there is an increase in the maximum contribution, from $$\$6,000$$ to $$\$9,000$$ 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 to spending to Scenano 2i: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the govemment repeals a previously existing investment tax credit. Shit the appropriate curve on the graph to reflect this change. The repeal of the prevlousty existing tak credit causes the interest rate to and the level of investment to Scenarh Ji tnially, the government's budget is balanced; then the government respends to the conclusion of a war by signifcantly reducing defense spending witheut changing taxes. This change in spending causes the government to nun a budget national saving. Shift the appropriate curve on the graph to refect this change. This causes the intereit rate to the level of lovestment spending. Scenario 1i individual Retirement Accounts (IRAs) aliow workers to sheiter a portion of their income from taxation. Suppose the maximum annual contribution to accounts of this type is $$\$6,000$$ per person. Now suppose there is an increase in the maximum contribution, from $$\$6,000$$ to $$\$9,000$$ per year: Shif the appropriate curve on the groph to reflect this change. This change in the fax treatment of saving causes the equilibrium interest rate in the market for foanable funds to and the level of investment spending to Scenario 2. An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within si ant time period, suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilbrium interest rate in the market for loanable funds to and the level of investment spending to Scenario $$2!$$ Int tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the governn previously existing investiment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to and the level of investment to Scenarie 3: tnitally, the govemment's budget is bolanced; then the gover fa. esponds to the conclusion of a war by significantly reducing defense spending without changling takes. This change in spending causes the government to run a budget which national saving. This change in spending causes the government to run a budget which national saving. Shit the appropriate curve on the graph to reflect this change. This causes the interest rate to the heve vn mestiment spending. spending without changing taxes. This change in spending causes the government to run a budget , which national saving. Shit the appropriate curve on the graph to refect this change. This causes the interest rate to the level of investment spe. This change in spending causes the ooyernment to run a budget , which nation Shift the appropriate curve on to reflect this change. This causes the interest rate to the level of investment spending. This change in spending causes the government to run a budget , which national savin Shift the appropriate curve on the graf change. This causes the interest rate to the level of investment spending.