8. Graph of LF Market r Loanable Funds Investment Saving r 0 LF 0
9.
10. Introduce Tax-deferred Savings Accounts r Loanable Funds D LF S LF r 0 LF 0 S LF 1 r 1 LF 1 Tax incentives for savings increase the supply of loanable funds… ...which reduces the interest rate.. .. and raises the quantity of loanable funds.
11. Introduce Investment Tax Credits –Increase in demand r Loanable Funds D LF S LF r 0 LF 0 D LF 1 r 1 LF 1 An investment tax credit (makes investment like building new factories more attractive) increases the demand for loanable funds… … which raises the equilibrium interest rate and greater saving… … which raises the equilibrium quantity of loanable funds.
12. Increased Government Budget Surplus (or smaller deficit) r Loanable Funds D LF S LF r 0 LF 0 S LF 1 r 1 LF 1 Government retires debt, freeing savings to flow to private uses.
13. Increased Government Budget Deficit: Crowding Out r Loanable Funds D LF S LF r 0 LF 0 S LF 1 r 1 LF 1 Government borrows more, reducing savings available for private uses.
14.
15. Expected Capital Productivity Increases r Loanable Funds D LF S LF r 0 LF 0 D LF 1 r 1 LF 1 Investment appears more profitable, so firms borrow more to buy capital goods.
![The Market for Loans ,[object Object],[object Object]](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)