• Market for loanable funds determines the interest rate and the demand is inversely related to interest rates while the supply is positively related to the interest rate • Supply of loanable funds comes from savers (people, firms, and gov’t) • In order to have investment both funds and a good climate are needed • Government can help with the climate i.e. reducing taxes on profits from investments • Interest rate is the price of money, in this case the demand and supply of money should determine the interest rates • The opportunity cost of holding cash is the interest gained while saving • Liquidity preference is the amount of money people wish to hold at one time • The supply of money is determined by the central bank, when more money is made available the interest rate goes down and this leads to more spending and therefore more spending leads to economic growth • Money in our economy is anything that is used as a medium of exchange (by custom or law) • Money supply = CC (currency and coins) + DD (demand deposits)
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 05/16/2008 for the course ECON 0005 taught by Professor Abdullah during the Fall '07 term at Tufts.