The Loanable Funds Market

The market where savers and borrowers exchange funds at the real rate of interest

The demand for loanable funds, or borrowing comes from households, firms, government, and the foreign sector.  The demand for loanable funds is in facts the supply of bonds

The supply for loanable funds, or savings comes from households, firms, government, and the foreign sector.  The supply for loanable funds is in facts the demand of bonds

Changes in the deamnd for Loanable Funds

• Remember that demand for loanable funds = borrowing
• More borrowing = more demand for loanable funds
• Less borrowing = less demand for loanable funds

Changes in supply of Loanable Funds

• Remember that supply of loanable funds = savings
• More saving = more supply pf loanable funds
• Less saving = less supply of loanable funds

When government does fiscal policy it will affect the loanable funds market

 Changes in the real interest rate will affect gross private investment