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chapter 2 - CHAPTER 2 Determination of Interest Rates 1...

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1 CHAPTER 2 Determination of Interest Rates
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2 CHAPTER 2 OVERVIEW This chapter will: A. Apply loanable funds theory to explain why interest rates change B. Identify the most relevant factors that affect interest rate movements C. Explain how to forecast interest rates
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3 A. Loanable Funds Theory 1. Determinants of the Demand for Loanable Funds - Household Demand for Loanable Funds There exists an inverse relationship between the interest rate and the quantity of loanable funds demanded.
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4 A. Loanable Funds Theory 2. Business Demand for Loanable Funds Shifts in the Demand for Loanable Funds businesses will demand a greater quantity of loanable funds at lower interest rates
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