What would happen in the market for loanable funds if the government were to increase the tax on interest income?

If the government increases the tax on interest income, it would likely decrease the incentive for savers to deposit their money in banks, leading to a reduction in the supply of loanable funds. As a result, the supply curve for loanable funds would shift to the left, causing interest rates to rise. Higher interest rates would discourage borrowing, potentially slowing down investment and economic growth. Overall, the market for loanable funds would experience higher costs for borrowing and reduced availability of funds.