ECO 1102 Lecture 10: Supply and Demand of Loanable Funds

• School: University of Ottawa
• Department: Economics
• Course: ECO 1102
• Professor: David Gray

Document Summary

What"s the pu(cid:396)pose: it (cid:271)(cid:396)i(cid:374)gs the e(cid:395)uality (cid:271)et(cid:449)ee(cid:374) (cid:374)atio(cid:374)al sa(cid:448)i(cid:374)g a(cid:374)d i(cid:374)(cid:448)est(cid:373)e(cid:374)t. The savers are matched with the buyers through financial instruments. Enterprises and governments will borrow money through bank loans, bonds, and stocks to purchase capital (investments). Financial capital: used to augment and to maintain the capital stock. It finances investment spending (spending on capital stock). Investment encouragement policies: most economists favour more investment spending. Investment tax credits a dollar for dollar reduction in the corporate income tax that would otherwise be payable. (give incentives to invest). Firms generally have three common forms of financing: financing through retained earnings. Issuing bonds in the market for loanable funds: the market for loanable funds money borrowed directly from the bank. When firms want to invest more, they need to borrow more to finance that investment. Running a deficit results in the (cid:862)(cid:272)(cid:396)o(cid:449)di(cid:374)g out(cid:863). When the government runs a deficit ( t . The deficit is financed through the issuing of bonds.