To explain:
The significance of loanable funds market to basic
Explanation of Solution
In modern macroeconomy, loanable funds market is a big source of national GDP because here huge volume of transaction of funds takes place. The expenditure method of accounting national income is Y=C+I+G + (X-M) whereC is consumption spending,I is investment spending,G is government spending, andX- M is net imports.
Savings is residual part of income after consumption.Iis normally defined as buying of things which will be used to generate more products and services in the future. In terms of national accounting,stocks,bonds,mutual funds and other cash equivalents are not categorized as assets,but rather categorized as savings.Savings from this view facilitate the acquisition of capital that is included in investments. Savings is done from household sector.
In a closed economy where there is no export or activity to interfere with the level of domestic savings, individual savings generate the provision of loanable funds accessible for investment reasons on an aggregate basis.The quantity of saved money available in the economy is equal to the quantity of financing available for business activities.The greater the savings level,typically the reduced the comparative rate of interest,ceteris paribus.On a
In loanable funds market,the financial intermediaries can help to increase the incentive to save by creating economic products that give easy liquidation but provide a greater return than a savings account. In this way,financial intermediaries in loanable funds market are an important element for transforming savings into investment.Savings like mutualfunds, and insurance annuities, sold by financial intermediaries consists of stocks,and bonds which in turn pay for investment capital,which improves the productivity,effectiveness,and production of products and services in the macroeconomy.
Loanable fund market:
Loanable fund market is the situation in which the needy or demander of funds and the supplier of funds meet and exchange the funds at a determined interest rate. It plays important role in finding basic GDP in macroeconomy.
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Chapter 22 Solutions
Principles of Economics (Second Edition)
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