Draw the graph · Macro · Loanable funds market
Tax-free retirement accounts
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Demand for loanable funds stays put. Supply of loanable funds shifts right.
The accounts raise the after-tax reward for saving, so households save more at every real interest rate. Saving is the supply of loanable funds, so supply shifts right. Demand is unchanged. The lower interest rate moves borrowers down along their demand curve.
The real interest rate falls and more funds are borrowed.
Common mistake. Students sometimes shift demand right because 'people want the accounts.' Wanting to save is supply. Demand belongs to those who want to borrow.
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