Final answer:
The supply of loanable funds would shift to the left if the government implements a policy that reduces the rewards earned by savers. This is due to a decrease in the incentive to save, resulting in lower levels of savings available for lending in the financial market.
Step-by-step explanation:
If the government implements a policy reducing the rewards earned by savers, we would expect the supply of loanable funds to shift to the left. This is because when the return on savings decrease, people are less incentivized to save money, which in turn, reduces the overall supply of funds available for loans.
Savers typically look for the best rate of return with acceptable levels of risk. A policy that reduces the rewards for saving would make saving less attractive relative to other forms of financial investments or consumption. As a result, people would likely save less money, which would decrease the supply of loanable funds in the financial market.
In the context of loanable funds, the supply side represents those who are saving rather than borrowing. The supply curve for financial capital or loanable funds represents all potential savings at various interest rates. When rewards for savers diminish, fewer people are willing to save, leading to a leftward shift in the supply curve of loanable funds.