The Loanable Funds Market

The Loanable Funds Market
-The market where savers and borrowers exchange funds (QLF) at the real rate of interest (r%).

-The demand for LF, or borrowing, comes from households, firms, the government, or the foreign sector. The demand for LF is, in fact, the supply of bonds.

-The supply of LF, or savings, comes from households, firms, the government, or the foreign sector. The supply of LF is, in fact, the demand for bonds.

Changes in Demand for Loanable Funds

-demand for loanable funds= borrowing (ie, supplying bonds)

-More borrowing = more demand for loanable funds (LF→)

-Less borrowing = less demand for loanable funds (LF ←)

Ex:

-Government deficit spending : = more borrowing
= more demand for LF
- DLF → and r% ↑

-Less investment demand : = less borrowing
= less demand for LF
-DLF ← and r% ↓

Changes in Supply of Loanable Funds

-remember that supply of loanable funds= saving (ig. demand for bonds)
-More saving = more supply of loanable funds

-Less saving = less supply of loanable funds

Ex:
-Government budget surplus : = more saving
= more supply of LF
SLF → and r% ↓

-Decrease in consumers' MPS: = less saving
= less supply of LF
SLF ← and r% ↑