- market where savers and borrowers exchange funds ( QLF ) at real rate of interest ( r % )
- demand for loanable funds, or borrowing, comes from households, firms, the government, and foreign sector
- demand for loanable funds is in fact the supply of bonds
- supply of loanable funds, or savings, comes from households, firms, the government, and foreign sectors
- supply of loanable funds is also demand for bonds
Change in Demand for Loanable Funds :
- demand for loanable funds equals more borrowing (supplying of bonds)
- more borrowing = more demand for LF ( → )
- less borrowing = less demand for LF ( ← )
- ex : government deficit spending = more borrowing = more LF
- less investment demand = less borrowing = less demand LF
Change in Supply of Loanable Funds :
- supply of LF = savings ( ex : demand for bonds )
- more savings = more supply of LF ( → )
- less savings = less supply of LF ( ← )
- ex : government budget surplus = more saving = more supply of LF ( SLF → r % ↓ )
- decrease in consumers MPS = less savings = less supply LF ( SLF ← r % ↑ )
- Loanable Funds Market determines real interest rate
- ∆ in real interest will affect Ig
- when the government does fiscal policy, it will affect the LF Market
- ∆ in savings/borrowing creates a ∆ in → r % ∆
- LF Market relates savings and borrowing
I really like the picture you have of the resource and product market cycle because I wasn't able to fully comprehend what was actually going on and what it had to do with the loanable funds market. This picture clears it up a it for me, and helps me understand how the resource and product markets works with the loans market.
ReplyDeleteI'm glad that my chart was able to help you :')
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