4.3 Loanable Funds Market

• What is the loanable funds market?

  Market for borrowing and lending
• The demand for loanable funds is directly related to the interest rate.

  False
• The supply of loanable funds is largely driven by savings
• How is equilibrium achieved in the loanable funds market?

  Demand equals supply
• The loanable funds market integrates all private and public savings and borrowings within an economy.

  True
• The demand for loanable funds is inversely related to the interest rate
• What factors influence the supply of loanable funds?

  Savings and surpluses
• Lower interest rates increase the demand for loanable funds.

  True
• Businesses demand loanable funds to invest in new equipment
• What is the relationship between consumer confidence and the demand for loanable funds?

  Positive
• Arrange the following factors affecting the demand for loanable funds:

  1️⃣ Consumer confidence

  2️⃣ Expected profitability

  3️⃣ Prevailing interest rates
• The loanable funds market determines the equilibrium interest rate and quantity of funds available for borrowing.


  True
• What incentivizes individuals and businesses to save more, increasing the supply of loanable funds?

  Higher interest rates
• Equilibrium in the loanable funds market is achieved when demand equals supply
• The demand for loanable funds is directly proportional to the interest rate.

  False
• Why do businesses demand loanable funds?

  To fund growth
• The supply of loanable funds comes from savings and government budget surpluses
• Higher interest rates encourage more saving, increasing the supply of loanable funds.


  True
• What happens to the supply of loanable funds when the government spends less than it collects in taxes?

  Increases
• The equilibrium interest rate is established when the demand for loanable funds equals its supply
• The supply of loanable funds is inversely related to the interest rate.

  False
• Match the component with its relationship to the interest rate:

  Demand ↔️ Inverse

  Supply ↔️ Direct
• At the equilibrium interest rate, the quantity of funds demanded equals the quantity supplied
• The demand for loanable funds is inversely related to the interest rate.


  True
• What happens to the interest rate if the quantity of funds demanded exceeds the quantity supplied in the loanable funds market?

  It increases
• The loanable funds market is where borrowers and lenders determine the equilibrium interest rate and the quantity of funds available for borrowing
• The demand for loanable funds is inversely related to the interest rate.


  True
• What are the two main drivers of the supply of loanable funds?

  Savings and budget surpluses
• The equilibrium in the loanable funds market is achieved when demand and supply are equal
• The demand for loanable funds comes primarily from businesses seeking capital and consumers needing loans.


  True
• What are three factors that influence the demand for loanable funds by businesses?

  Profitability, interest rates, investments
• The demand for loanable funds is inversely related to the interest rate because higher rates make borrowing more expensive
• Higher interest rates incentivize individuals to save more, increasing the supply of loanable funds.


  True
• What happens to the supply of loanable funds when the government runs a budget surplus?

  It increases
• The equilibrium in the loanable funds market occurs when the demand for funds equals the supply
• At equilibrium in the loanable funds market, the interest rate ensures that all available funds are borrowed.


  True
• What are three factors that influence the demand for loanable funds?

  Investment, confidence, interest rates
• The supply of loanable funds is influenced by savings levels, income levels, and government budget surpluses
• Higher consumer confidence leads to an increase in the demand for loanable funds.

  True
• What are two key roles of interest rates in the loanable funds market?

  Cost of borrowing, incentive to save