ch 2 - CHAPTER 2 Determination of Interest Rates 1 A....

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1 CHAPTER 2 Determination of Interest Rates
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2 A. Loanable Funds Theory Determinants of the Demand for Loanable Funds Household Demand for Loanable Funds inverse relationship between the interest rate and the quantity of loanable funds demanded. Business Demand for Loanable Funds businesses will demand a greater quantity of loanable funds at lower interest rates Government Demand for Loanable Funds expenditures and tax policies are independent of the level of interest rates or interest-inelastic
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3 A. Loanable Funds Theory Foreign Demand for Loanable Funds Depends on the interest rate differential between the two. The greater the differential, the greater the demand for foreign funds. The quantity of U.S. loanable funds demanded by foreign governments will be inversely related to U.S. interest rates.
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4 A. Loanable Funds Theory Determinants of the Supply of Loanable Funds Suppliers more willing to supply at higher rates U.S. supply is influenced by the Federal Reserve Tax rates on interest income affect the level of supply
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ch 2 - CHAPTER 2 Determination of Interest Rates 1 A....

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