ECON102 Lecture Notes - Lecture 11: Loanable Funds, Real Interest Rate, Credit Risk

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Joseph Dejuan

Document Summary

The supply of loanable funds is the relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same. Saving is the main item that makes up the supply of loanable funds. A change in real interest rate will move you along the same curve, and increase quantity demanded. Any change in a variable other than real interest rate will shift the curve. A change in disposable income, expected future income, wealth, or default risk changes the supply of loanable funds (shift in the curve). An increase in disposable income, increases saving and increases the supply of loanable funds. The higher a household"s expected future income, the smaller its saving today and hence, decreases the supply of loanable funds. The higher a household"s wealth, the smaller its saving and hence, decreases the supply of loanable funds.