How the equilibrium interest rate and the
Concept introduction:
Loanable Funds Market: It is an imaginary market which illustrates the market result of the
Demand for Loanable Funds: It is represented by a downward sloping curve which indicates that as the interest rate increases the demand for loanable funds decreases and vice versa.
Supply for Loanable Fund: It is represented by the s curve that's slopes upward which means that as the interest rate increases the supply of loanable fund also increases and vice versa.
Equilibrium Interest Rate: In the loanable fund market, the point where demand curve and supply curve intersect each other, gives the equilibrium interest rate.
Factors that help in shifting demand for loanable funds are:
Change in Perceived Business Opportunities: when the businessman in a market is opportunistic and optimistic about the condition of market then the demand curve shifts rightward otherwise left ward.
Change in Government Borrowing: when there is budget deficit it means government spends more than the tax revenue it has.
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