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. (graph in image) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. 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 25%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to (a. fall, b. rise) and the level of investment spending to (a. increase, b. decrease). Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government 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 (a. fall, b. rise) and the level of investment to (a. fall, rise). Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget (a. deficit, b.surplus) , which (a. increases, b. decreases) national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to (a. fall, b. rise), (a. crowding out, b. increasing) the level of investment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or depositsis taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%.Shift the appropriate curve on the graph to reflect this change.This changethe tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds toand the level of investment spending 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 toScenario 3: Initially, the government's budget balanced; then the government significantly increases spending on national defense without changingtaxes.This change in spending causes the government to run budgetShift the appropriate curve on the graph to reflect this change.and the level of investment toThis causes the interest rate to, which▼ the level of investment spending.national saving. The 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.)INTEREST RATE (Percent)LOANABLE FUNDS (Billions of dollars)SupplyDemandDemandSupply?

Question

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. (graph in image) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. 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 25%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to (a. fall, b. rise) and the level of investment spending to (a. increase, b. decrease). Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government 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 (a. fall, b. rise) and the level of investment to (a. fall, rise). Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget (a. deficit, b.surplus) , which (a. increases, b. decreases) national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to (a. fall, b. rise), (a. crowding out, b. increasing) the level of investment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or depositsis taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%.Shift the appropriate curve on the graph to reflect this change.This changethe tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds toand the level of investment spending 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 toScenario 3: Initially, the government's budget balanced; then the government significantly increases spending on national defense without changingtaxes.This change in spending causes the government to run budgetShift the appropriate curve on the graph to reflect this change.and the level of investment toThis causes the interest rate to, which▼ the level of investment spending.national saving. The 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.)INTEREST RATE (Percent)LOANABLE FUNDS (Billions of dollars)SupplyDemandDemandSupply?

Accepted Answer

investment definition is a resource procured or put resources into to create financial momentum and…