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3. Loanable Funds Theory There is a demand curve for loanable funds (who demands loans?). There is a supply curve for loanable funds (who supply
3. Loanable Funds Theory There is a demand curve for loanable funds (who demands loans?). There is a supply curve for loanable funds (who supply funds to banks etc.?). Why is the demand for loanable funds downward sloping? Money and Banking Questions In other words, why is it that when interest rates rise the demand for loanable funds falls. Consumers perspective? Business perspective? Government perspective? Foreign perspective? Why is the supply of loanable funds upward sloping, but less sensitive to interest rate changes? Why would consumers supply loanable funds if interest rates rise? The opportunity cost of holding money, as opposed to putting it in the bank, rises. The opportunity cost of spending increases. What about producers? An increase in interest rates, as previously mentioned lowers the incentive to borrow. If there is less borrowing, there is mostly like more saving. Dr. What about the government? Generally speaking, an increase in interest rates will n
