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Unit Four:

Unit Four:. The Loanable Funds Market. I. The Loanable Funds Graph. II. Shifts in Demand for Loanable Funds. III. Shifts in Supply for Loanable Funds. IV. Practice.

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Unit Four:

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  1. Unit Four: The Loanable Funds Market

  2. I. The Loanable Funds Graph

  3. II. Shifts in Demand for Loanable Funds

  4. III. Shifts in Supply for Loanable Funds

  5. IV. Practice • 1) A business will decide whether or not to borrow money to finance a project based on a comparison of the interest rate with the ___________ from its project. • Expected revenue • Profit • Rate of return • Cost generated • Demand generated

  6. IV. Practice • 2) Which of the following will increase the demand for loanable funds? • A federal government budget surplus • An increase in perceived business opportunities • A decrease in the interest rate • Positive capital inflows • Decreased private saving rates

  7. IV. Practice • Which of the following will increase the supply of loanable funds? • An increase in perceived business opportunities • Decreased government borrowing • An increased private saving rate • An increase in the expected inflation rate • A decrease in capital inflows

  8. IV. Practice • 4) Both lenders and borrowers base their decisions on • Expected real interest rates. • Expected nominal interest rates. • Real interest rates. • Nominal interest rates. • Nominal interest rates minus real interest rates.

  9. IV. Practice • Does each of the following affect either the supply or the demand for loanable, funds, and if so, does the affected curve increase (shift to the right) or decrease (shift to the left)? • There is an increase in capital inflows into the economy. • Businesses are pessimistic about future business conditions. • The government increases borrowing. • The private savings rate decreases.

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