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Lecture 11

ECO 1102 Lecture Notes - Lecture 11: Loanable Funds, Demand Curve

Course Code
ECO 1102
David Gray

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Disponible Income = (Y - T)
Public Saving / Government Balance = T - G
—> T – G > 0, it runs a surplus
—> T – G < 0, it runs a deficit
Market for Loanable Funds (8.1 in text)
—> savers SUPPLY the loanable funds
—> investors DEMAND the loanable funds
—> price of loanable funds is the interest rate
*these numbers are made up
—> LOD: interest rate goes up, the quantity demanded for goes down
—> LOS: interest rate goes down, the quantity supplied for them goes up
—> interest rate adjusts to equilibrate the market (When loanable funds are relatively
scarce (plentiful), we will have high (low) interest rates
What types of policies can be implemented to encourage saving?
—> Lower taxes on the returns to saving and shift the incidence of taxation to
—> better to cut income taxes rather than the GST because with income taxes, you are
taxing individuals according to what they put into the economy as opposed to what they
take out of it
—> increase tax shelters for retirement saving (RRSP)
-when we lower taxes on savings, people have more incentive to
-so theres more loanable funds, so the supply curve is pushed
down, causing a lower equilibrium, a higher level of loanable funds
(120 to 140) and lower interest rate 95% to 4%)
(lowering taxes on saving means people save their money, so their
more willing to offer loans…)
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