Answer to Question #275371 in Macroeconomics for Jay

Question

Over the past few years, quite a number of private loan companies have been

established globally. What impacts do you think the pandemic is having on

these kinds of companies?

Answer 1

As a result of the epidemic, businesses have reduced their investment. As a result, demand for loanable cash has dwindled. As a result, demand for loanable funds has shifted to the left, lowering interest rates and reducing the equilibrium amount of savings and investment (loanable funds).

Simultaneously, the pandemic-induced recession has forced people to consume less and save more, resulting in increasing savings. As a result, the availability of loanable cash has grown. As a result, the supply of loanable funds has shifted to the right, lowering interest rates and boosting the equilibrium amount of savings and investment (loanable funds).

The net result is a significant reduction in interest rates, but the impact on savings and investment (loanable money) is uncertain.

Initial demand and supply of loanable funds D0 and S0 cross at point A with initial interest rate i0 and amount of savings and investment (loanable funds) Q0 in the graph below.

D0 changes left to D1 as demand falls, and S0 shifts right to S1 when supply grows, intersecting at point B with a reduced interest rate i1 and a new quantity of loanable funds Q1.