5. The market for loanable funds and government policyThe following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help youcomplete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of eachindividual scenario. (Note: You will not be graded on any changes you make to the graph.)DemandSupplySupplyDemandLOANABLE FUNDS (Billions of dollars)Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annualcontribution to such accounts is $5,000 per person. Now suppose there is an increase in the maximum contribution, from $5,000 to $8,000 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 tov and the level of investmentspending toScenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose thegovernment implements a new investment tax credit.Shift the appropriate curve on the graph to reflect this change.The implementation of the new tax credit causes the interest rate to and the level of saving to ▼Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changingtaxes.This change in spending causes the government to run a budgetwhichv national saving.Shift the appropriate curve on the graph to reflect this change.This causes the interest rate tothe level of investment spending.INTEREST RATE (Percent)

Scenario -1 Individual savings will benefit from increasing the maximum contribution to an IRA.…

5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) Demand Supply Supply ST RATE (Percent)