ECON 101 Lecture Notes - Lecture 29: Capital Accumulation, Capital Flight, Government Budget Balance
Document Summary
Supply and demand for loanable funds and foreign-currency. Remember, we simplified the market for loanable funds before and said there was only one interest rate. It was the place where savers go to deposit and borrowers go to borrow. In an open economy, we start with s = i + nco. The supply of loanable funds comes from s, national saving, and the demand for loanable funds comes from i, investment, and nco, net capital outflow. Loanable funds is the flow of resources available for capital accumulation that are generated domestically. Buying capital assets increases the demand for loanable funds (whether at home (i) or abroad (nco)) Quantity supplied and quantity demanded depends on the real interest rate. Higher real interest rate means higher quantity supplied and less quantity. The graph of the market for loanable funds looks like a simple supply and demand demanded graph.
