Credit Market

• The credit market matches borrowers (the source of credit demand) and savers (the source of credit supply).
• The credit market equilibrium determines the real interest rate.
• The annual real interest rate is r = i - π, where i is the nominal interest rate and π is the inflation rate
• The credit demand curve shifts with changes in any of the following:

  • Perceived business opportunities for firms
  • Household expectations
  • Government policy
• The credit supply curve shifts with changes in either of the following:

  • Saving motives of households
  • Saving motives of firms