INTEREST RATE This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. LOANABLE FUNDS D A tax law change that successfully encourages saving will S D S ? interest rates, which leads to investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Amira, a rising third-year in college, plans to save $600 from her summer job in order to buy textbooks for the upcoming fall semester. Amira's parents are so impressed with her plans that they offer to pay her an additional 25% interest per month on the money she saves, which means that Amira is now earning a large rate of return on her saving. By the end of the summer, it turns out that Amira saved $650 (before the interest paid by her parents) from her job. This means that the must be bigger than the effect for Amira in this case. effect