g periods when investors become fearful that stocks are overvalued, they try to get rid of their stocks, and the stock market experienced a major decline. During these periods, interest rates also tend to decline. Use the loanable funds to explain how a massive sale of stocks leads to lower in

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.