ECO 212 Lecture Notes - Lecture 4: Loanable Funds, Interest Rate, Real Interest Rate
15 Nov 2016
School
Department
Course
Professor
Document Summary
Money saved: households individuals putting money in their back, foreign entities every business operating in the us puts money in the bank. Money is borrowed by loanable funds market: banks, bonds, stocks. Money is loaned to borrowers: firms, government. Every dollar borrowed requires a dollar saved: lenders can"t lend money they don"t have money comes from savings. Chain of borrowing: gdp (output, production) requires investment, investment requires borrowing, borrowing requires savings, the loanable funds market makes this process efficient. The price of loanable funds: reward/ incentive for savers, cost for borrowers. Rises/ falls affected by supply and demand. Supply of loanable funds: when you save money you are supplying funds, you will be returned this money as a supplier on the. 31st: if the cost of borrowing money is higher (interest rate) the supplier receives more money, you are a supplier if you have a positive balance in your bank acct. Inflation effects interest rates: real interest rate.
