Final answer:
In a closed economy with fixed national savings, a decrease in investment tax credits would decrease the demand for loanable funds, leading to a fall in real interest rates.
Step-by-step explanation:
When the government introduces a decrease in investment tax credits in a closed economy with national saving fixed, this typically would lead to a decrease in business investment as tax credits are an incentive for firms to invest. When investment demand decreases, this will lower the demand for loanable funds. According to the loanable funds theory, a decrease in the demand for loanable funds with no change in the supply will lead to a fall in the real interest rate.
The national savings and investment identity in a closed economy can be expressed as S = I, implying that savings equals investment. With national savings fixed, when the government policy decreases investment tax credits, there is less incentive for investment, thus investment decreases, demand for capital falls, and ceteris paribus (all other factors being equal), this will lead to a decrease in the real interest rates.