The subject of this question is English and the grade level is High School.
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 18%. Now suppose there is a decrease in the tax rate on interest income, from 18% to 14%.
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 decrease and the level of investment to increase.
Scenario 2:
An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some 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 decrease and the level of investment to increase.
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 deficit, which reduces national saving.
Shift the appropriate curve on the graph to reflect this change.
This causes the interest rate to increase, leading to a reduction in the level of investment spending.