In general - The loanable funds market is illustrated in...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
In general, the amount that has to be repaid on a loan of  X  dollars for  t  years at an annual interest  rate of  r  is given by the formula  For example, if X = $20,000,  r  = .05, and  t  = 2, the amount repaid is found to be $20,000 × (1.05) 2  =  $22,050.  Determination of the equilibrium interest rate.  The  equilibrium interest rate  is determined in the  loanable funds market. All lenders and borrowers of loanable funds are participants in the loanable  funds market. The total amount of funds supplied by lenders makes up the supply of loanable funds,  while the total amount of funds demanded by  borrowers makes up the demand for loanable funds. 
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: The loanable funds market is illustrated in Figure 1 . The demand curve for loanable funds is downward sloping, indicating that at lower interest rates borrowers will demand more funds for investment. The supply curve for loanable funds is upward sloping, indicating that at higher interest rates lenders are willing to lend more funds to investors. The equilibrium interest rate is determined by the intersection of the demand and supply curves for loanable funds, as indicated in Figure 1 . Figure 1 Determination of the equilibrium interest rate...
View Full Document

This note was uploaded on 11/19/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

Page1 / 2

In general - The loanable funds market is illustrated in...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online