Concepts
- Loanable Funds Market vs. Money Market
- Long-Run vs. Short-Run
- Saving vs. Spending
- Real Interest Rate vs. Nominal Interest Rate
- Supply of Loanable Funds (Savers)
- Direct Relationship with Interest Rates
- Political/Economic Landscape
- Demand for Loanable Funds (Borrowers)
- Inverse Relationship with Interest Rates
- Business Expectations
- Crowding Out
- Increases Demand for Loanable Funds
- Decreases Supply for Loanable Funds
- Interest Rate Controls Imposed by the Government
- Interest Rate Ceiling
- Interest Rate Floor
Overview
The primary purpose of the loanable funds market is to convert one person’s saving into another person’s borrowing. The supply of loanable funds comes from people saving money while the demand for loanable funds primarily comes from businesses that borrow. There is an inverse relationship between interest rates and how people save and a direct relationship between interest rates and how businesses borrow. In this lesson, we observe how the market forces of supply and demand in the loanable funds market bring about equilibrium, and how equilibrium will change when outside influences cause these lines to shift. Finally, we will learn how the loanable funds market is affected by government intervention like interest rate ceilings and floors.
Materials
Lecture
Video Coming at Later Date
Quiz
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