Loa able funds market
The market where savers and borrowers exchange funds(Qlf) at the real rate of interest. (R%)
The demand for loan able funds, or borrowing comes from households, firms, government and foreign sectors. The demand for loan able funds is in fact the supply of bonds
The supply for loan able funds, or saving comes from households, firms, government, and the foreign sectors. The supply loanable funds is also the demand for bonds
Changes in the demand for loanable funds.
Remember that demand for loanable funds= borrowing
More borrowing your do = more demand for loanable funds. ->
Less borrowing = less demand for loanable funds <-
Examples-
Government deficit spending = more borrowing = more demand for loanable funds
R%= ->
Less investing = less borrowing =
R% <-
Changes in the supply of loanable funds = savings
More saving = loanable funds ->
Less saving = loanable funds <-
Examples
Government surplus = more saving = real interest rate Decreases
The other is decreasing
When government does fiscal policy it will affect the loanable funds market
Changes in the real interest rate will affect gross private investment.
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