4.3 Loanable Funds Market

• The supply of loanable funds is influenced by savings rates, monetary policy, and international capital flows
• Lenders supply loanable funds to earn a return on their savings
• Match the terms with their descriptions:

  Equilibrium interest rate ↔️ Quantity demanded equals quantity supplied

  Supply of loanable funds ↔️ Provided by savers, banks, investors

  Demand for loanable funds ↔️ Driven by investment and consumption
• Any changes in the factors affecting demand or supply will result in a new equilibrium
• The loanable funds market is driven by the desire to finance investments and consumption
• Borrowers in the loanable funds market seek funds to finance investments and consumption
• Match the factor with its effect on the supply or demand of loanable funds:

  Investment Opportunities ↔️ Increases demand

  Savings Rates ↔️ Increases supply

  Monetary Policy ↔️ Reduces demand
• What is the primary role of interest rates in the loanable funds market?

  Balance supply and demand
• What effect do higher savings rates have on the supply of loanable funds?

  Increase supply
• Match the factor with its effect on demand and supply:

  Investment Opportunities ↔️ Increases demand ||| No direct impact

  Savings Rates ↔️ No direct impact ||| Increases supply

  Monetary Policy ↔️ Reduces demand ||| Increases supply
• Conversely, if investment opportunities expand, the demand for loanable funds increases, shifting the demand curve to the right
• The loanable funds market is driven by the desire to finance investments and consumption.


  True
• What happens to the demand for loanable funds when investment opportunities increase?

  It increases
• Order the components of a graph illustrating the equilibrium in the loanable funds market:

  1️⃣ Interest Rate on the y-axis

  2️⃣ Supply of Loanable Funds curve

  3️⃣ Demand for Loanable Funds curve

  4️⃣ Equilibrium Point
• At the equilibrium interest rate, there is no tendency for the rate to change unless there are shifts in demand or supply.


  True
• Interest rates determine the cost of borrowing and the return on lending
• How does monetary policy affect the loanable funds market when interest rates rise?

  Decreases demand, increases supply
• What is the significance of the loanable funds market in the economy?

  Channels savings into investments
• The equilibrium interest rate is the rate at which the quantity of loanable funds demanded equals the quantity supplied.


  True
• The equilibrium interest rate balances the desire to borrow and the willingness to lend.


  True
• The demand for loanable funds is influenced by investment opportunities and government policies.


  True
• The loanable funds market is driven by the desire to finance investments and consumption.

  True
• The demand for loanable funds is influenced by government policies.


  True
• Lenders in the loanable funds market aim to earn a return on their savings.

  True
• Steps to determine the equilibrium interest rate in the loanable funds market:

  1️⃣ Investment opportunities increase

  2️⃣ Demand for loanable funds rises

  3️⃣ Interest rate increases

  4️⃣ Supply of loanable funds remains constant

  5️⃣ New equilibrium is reached
• Interest rates influence both investment and savings decisions.

  True
• International capital flows can increase the supply of loanable funds in a country.

  True
• When one of these factors changes, it shifts either the demand or supply curve in the loanable funds market, resulting in a new equilibrium interest rate.
• What happens to the demand for loanable funds when the government borrows money?

  It increases
• Match the component of the loanable funds market with its description:

  Demand for Loanable Funds ↔️ Funds borrowed by individuals, businesses, and governments

  Supply of Loanable Funds ↔️ Funds provided by savers, banks, and foreign investors

  Equilibrium Interest Rate ↔️ Rate where quantity demanded equals quantity supplied
• An increase in savings rates will put downward pressure on the equilibrium interest rate.


  True
• What is the equilibrium interest rate in the loanable funds market determined by?

  Demand and supply
• Match the concept with its description:

  Equilibrium Interest Rate ↔️ Rate where demand equals supply

  Demand Curve ↔️ Shows interest rate and demand relationship

  Supply Curve ↔️ Shows interest rate and supply relationship
• Steps in the process when the demand for loanable funds increases:

  1️⃣ Demand curve shifts to the right

  2️⃣ Equilibrium interest rate rises

  3️⃣ Quantity of loanable funds demanded increases
• When government borrowing increases, the demand for loanable funds shifts to the right
• What is the loanable funds market driven by?

  Investments and consumption
• Who are the borrowers in the loanable funds market?

  Individuals, businesses, governments
• Order the factors affecting the equilibrium interest rate in the loanable funds market:

  1️⃣ Investment opportunities

  2️⃣ Savings rates

  3️⃣ Government policies

  4️⃣ Monetary policy

  5️⃣ International capital flows
• What happens to the equilibrium interest rate if savings rates increase?

  It decreases
• What happens to the interest rate when the quantity of loanable funds demanded equals the quantity supplied?

  It remains unchanged