Lesson 4 - time implies uncertainty Exhibit 1 Interest rate...

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Lesson Four Interest Rates – What they are  and How they are Determined In this lesson we gain an understanding of the nature,  determination and role of interest rates. Suggested Reading:  RSU Chapter 4
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What is “interest”? Interest  is a phenomenon that is at once familiar and  mysterious It is a phenomenon that has existed throughout human  history – and yet has been subject to restrictions and  taboos Interest  is a phenomenon that is closely connected to  time – in fact the essence of  interest  is positive TIME  PREFERENCE Time preferences are positive because the passage of 
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Unformatted text preview: time implies uncertainty Exhibit 1 Interest rate L* r* loanable funds S upply of loanable funds (lending) D emand for loanable funds (borrowing) Interest Rate Determination Interest rate L* r * loanable funds S upply of loanable funds (lending) D emand for loanable funds (borrowing) Exhibit 2 r ** L** Increased Demand Interest Rate Determination an increase in the D for LF Exhibit 3 Interest rate L* r* loanable funds S upply of loanable funds (lending) D emand for loanable funds (borrowing) r** L** I ncreased Supply Interest Rate Determination an increase in the S of LF...
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Lesson 4 - time implies uncertainty Exhibit 1 Interest rate...

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