Answer to Question #153766 in Macroeconomics for TEE ENG XUAN

Question

What determines the demand for loanable funds? 

Answer 1

Answer:

you can observe two maket forces demand for loanable funds and other hand supply for loanable funds.

1)Demand curve represent negative relationship between Interest rate and demand for loanable funds.

Meaning is that more demand - - - - - more investment

2) Demand for loanable funds curve

go down left to the right meaning is that higher loan's interest rate, the fewer firm want a loan.

So we can say the demand for loanable funds is based on the borrowing.

Three factors determines the demand for loanable funds.... These are following.....

A) Investment : Private and public sector need capital for investment on new capital goods and inventories

Investment more only at lower rates of rate of interest....... The demand for loanable funds for investment purposes rise with a fall in the rate of interest, or interest----elastic

B) Dis saving

Dis saving means consuming more than the income in the current period...... Thus negative saving.

Consumers are ready to purchase durable goods such as refrigerator, tv etc.

Thats why Dis saving is more at lower rate of interest and less at higher rate. No

C) Hoarding

Loanable funds are also demanded for hoarding purposes that is for the satisfaction of the desire of people hold money.

Near future they can use such amount in better way

The demand for loanable funds increase as the rate of interest fall.