- Remember that supply of borrowing of loan-able funds = savings (liw demand for bonds)
- more savings= more supply of loan-able funds (->)
- less savings = less supply of loan-able funds (->)
- EX -
- -- Government budget surplus = more savings= more supply Loan-able funds .: Slf -> .: v
- -- decrease in consumers MPS = less saving = less supply of loan-able funds .: slf <- .:r ^
Final Thoughts on Loan-able Funds
- loanable funds market determines the real interst rate
- when government does fiscal policy it will affect the loan-able funds market
- changes in the real interst rate (r%) will affect Gross Private investment.
Federal Fund Rate- the interest rate that commercial bank, change other commercial banks for over night
- discount rate- loans form FED
- Sister banks- federal fund rate
Prime Rate- the interest rate that is given to a banks most credit worthy consumers
o-4%
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