ECON 104 Lecture Notes - Lecture 12: Loanable Funds, Demand Curve, Real Interest Rate

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Chapter 8: saving, investment, and the financial system. Financial system: the institutions in the economy that help match one person"s saving with another person"s investment: the financial system moves the economy"s scarce resources from savers to borrowers. Financial markets: the institutions through which a saver can directly supply funds to a borrower. Bond market: a bond is a certificate of indebtedness, the holder can hold the bond until maturity or can sell the bond to someone else. It identifies the date of maturity, at which the time the loan will be repaid. The market for loanable funds: supply side: households (private saving, they can make savings, government: if positive, it increases national saving and the supply of loanable funds. If negative, it reduces national saving and the supply of loanable funds. Supply curve: an increase in the interest rate makes saving more attractive, which increases the quantity of loanable funds supplied.

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