Using a Graph Representing the Market for Loanable Funds, Show

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The Answer is As shown in the graph below, the economy starts in equilibrium at point E₀, with interest rate r₀ and equilibrium quantity saved and invested at q₀.If the investment tax credit is abolished, the incentive to invest is reduced, and less investment will be undertaken at each interest rate.Therefore, the demand-for-loanable-funds curve shifts from D₀ to D₁.The new equilibrium is at E₁, with a lower interest rate, r₁, and a lower level of saving and investment, Q₁.Hence, elimination of the investment tax credit reduces interest rates and reduces investment. <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB8859/11eb8aef_cd04_746e_8952_83a623f8ffa8_TB8859_00.jpg" alt="As shown in the graph below, the economy starts in equilibrium at point E₀, with interest rate r₀ and equilibrium quantity saved and invested at q₀.If the investment tax credit is abolished, the incentive to invest is reduced, and less investment will be undertaken at each interest rate.Therefore, the demand-for-loanable-funds curve shifts from D₀ to D₁.The new equilibrium is at E₁, with a lower interest rate, r₁, and a lower level of saving and investment, Q₁.Hence, elimination of the investment tax credit reduces interest rates and reduces investment.  " class="answers-bank-image d-block" rel="preload" >

Using a Graph Representing the Market for Loanable Funds, Show

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