4.7: The Loanable Funds Market Flashcards
What type of interest does borrowers and lenders focus on?
Real Interest Rates since it represent their real rate of return
Loanable Funds Market
Shows the supply and demand of loans and shows the equilibrium real interest rate
What is the relationship b/tw interest rate, quantity loans demanded
Inverse Relationship
What is the relationship b/tw supply, real interest rate and quantity loans supplied ?
A direct/ positive relationship
What is at the equilibrium of the loanable funds market graph?
The real interest rate that borrowers want to borrow at that equals the amount lenders want to lend
What are the demand shifters of the loanable funds market?
- Changes in borrowing by consumers
- Changes in borrowering by businesses
- Changes in borrowing by government. (ex. deficit spending)
What are the shifters of supply of the loanable funds market?
- Changes in private savings behavior
- Changes in public savings
- Changes in foreign investment ( ex. more inflow of foreign financial capital)
Where do demand for loans come from?
Borrowers/ investors
Where do supply for loans come from?
Lenders / savers
What makes lending money possible?
Saving
What is the supply of loanable funds?
The amount of money that is saved
Private Saving
The amount that households save instead of consume
Public Saving
The amount that the gov. saves instead of spends
National Savings
Public + Private Saving
Who also lend money to the loanable funds beside private and public savings?
Foreigners
