Loanable Funds Market

Loanable Funds Market (LF)→market where savers and borrowers exchange funds (QLF) @ real rate of interest (r%)

• D for LF, or borrowing comes form households, firms, govt, and foreign sector. DLF is supply of bonds

• SLF, or savings comes from households, firms, govt, and foreign sector. SLF also demand for bonds. 

Changes in DLF:

• more borrowing=more demand for LF (→)
• less borrowing=less demand for LF (←)

EX) Govt deficit spending=more borrowing

• =more DLF (DLF→, r% ↑) 

 less investment demand=less borrowing

• less DLF (DLF ←, r% ↓)

Changes in SLF:

• more saving=more SLF (→)
• less saving=less SLF (←)

EX) Govt budget surplus=more saving

• more SLF (SLF →, r% ↓)

Decrease in consumer's MPS=less saving

• less SLF (SLF ←, r% ↑)