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ECON 1100 Lecture Notes - Lecture 7: Loanable Funds

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copperraccoon727
14 Jun 2017
School
Fordham University
Department
Economics
Course
ECON 1100
Professor
Nimrod Segev

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Document Summary

The market for loanable funds and the basic tolls of. S= i for the economy as a whole. Definition: the market in which those who want to save supply funds and those who want to borrow to invest demand funds: assumptions: the economy has only one financial market called the market of loanable funds. All savers go to this market to deposit their saving and all borrowers go to this market to take our their loans. One interest rate which is the cost of borrowing and the return on saving. The source of the supply of loanable funds is saving. The source of the demand of loanable funds is investment. The interest rate is the price of the loan. As interest rates rise borrowing is more expansive and the quantity demanded for funds decline. Higher interest rate makes saving more attractive and the quantity of loanable funds supplies rises.

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Related Questions

Supply and demand for loanable funds

The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward sloping blue line represents the demand for loanable funds.

(Saving/Investment) is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded (decreases/increases) .

Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is (Greater/Less) than the quantity of loans demanded, resulting in a (Surplus/Shortage) of loanable funds. This would encourage lenders to (Raise/Lower) the interest rates they charge, thereby (Increasing/Decreasing) the quantity of loanable funds supplied and (Increase/Decrease) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ______%.

 

 

The following graph shows the market for loanable funds in a closed economy. The upward-sloping line shows the supply of loanable funds and the downward sloping line shows the demand for loanable funds.

(Saving/Investment) is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded (decreases/increases) .

Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is (Greater/Less) than the quantity of loans demanded, resulting in a (Surplus/Shortage) of loanable funds. This would encourage lenders to (Raise/Lower) the interest rates they charge, thereby (Increasing/Decreasing) the quantity of loanable funds supplied and (Increase/Decrease) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ______%.

 

as the interest rate falls, the quantity of loanable funds demanded

If there is a shortage of loanable funds, then

a. the supply for loanable funds shifts right and the demand shifts left.

b. the supply for loanable funds shifts left and the demand shifts right.

c. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.

d. neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.