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 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%.
This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loan able funds to( fall, rise) and the level of investment spending to (increase, decrease) .
An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government implements a new investment tax credit.
The implementation of the new tax credit causes the interest rate to (rise, fall) and the level of saving to (rise, fall)
Initially, the government's budget is balanced, then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes.
This change in spending causes the government to run a budget (surplus, deficit ) which ( increases, decreases) national saving.
This causes the interest rate to (rise, fall) , (crowding out, increasing) the level of investment spending.