Answer to Question #229791 in Macroeconomics for Munice

Question

In the short run what should we expect considering the market for loanable funds If expectations about south Africa's future economic performance are negative such that firms cancel plans to build new equipment and factories

Answer 1

supply of loanable funds to decrease and  the interest rate will decrease.

since future economic growth is negative which lead to a fall of ivestiments. This will decrease demand for loanable funds as borrowers know that market is not performing well, if their borrow money now, it will not give them profit in investing. Supply of loananle funds will rise as for riskier investments, suppliers of loanable funds charge higher interest rate. In case of risky market, it is a chance for them to earn extra money. Thus rising supply of funds and falling demand will leads to falling interest rates.