March 23, 2015
Loanable Funds Market
- The market where savers and borrowers exchange funds (QLF) at the real rate of interest (r%)
- The demand for loanable funds, or borrowing comes from households, firms, government and the foreign sector. The demand for loanable funds is in fact the supply of bonds.
- The supply of loanable funds, or savings comes from households, firms, government and the foreign sector. The supply of loanable funds is also the demand for bonds
Change in the demand for loanable fund
- Demand for loanable funds = Borrowing
- More borrowings = More demand for loanable funds (>)
- Less borrowing = Less demand for loanable funds (<)
Change in the supply of loanable funds
- Supply of loanable funds = Savings
- More Saving = More supply of loanable funds (>)
- Less saving = Less supply of loanable funds (<)
- Decrease in consumers MPS = Less saving = Less supply of loanable funds
When government does fiscal policy it will affect the loanable funds market.
Change in the real interest rate will affect gross private investment
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