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Econ ch 9 notes

by: Alikhan Ladhani

Econ ch 9 notes ECON 2105

Alikhan Ladhani
GPA 3.2
Principles of macroeconomics
Brian A. Hunt

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About this Document

Ch 9
Principles of macroeconomics
Brian A. Hunt
Class Notes
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This 3 page Class Notes was uploaded by Alikhan Ladhani on Monday February 29, 2016. The Class Notes belongs to ECON 2105 at Georgia State University taught by Brian A. Hunt in Spring 2016. Since its upload, it has received 50 views. For similar materials see Principles of macroeconomics in Economcs at Georgia State University.


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Date Created: 02/29/16
CH 9 book notes 02262016 Loanable funds market Loanable funds market market where savers supply funds for loans to borrowers Includes places like stock exchanges investments banks mutual fund rms and commercial banks The role of the loanable funds marker Sailings lLIlJEIrIE 1 0 As people save money they will put it in to banks bonds or stocks and with the money that is compiled it will be given out to other people as loans to the borrowers Future periods Today m Illl1E 0 Company borrows money to pay workers and buy resources then produce the goods and then what they make from the product will be used to pay back the borrowed money and pay workers Interest rate a price of loanable funds quoted as a percentage of the original loan amount Interest Gaadl Laahalble funds savings quotrate available far a lean 5 gaai gg Price Interest rate 5 i Sellerfsxuppliers Savers r lBuyersl Demanders Borrowers 5 a a g 4 i39 D lnvestment Quaa 5275 sauna salsa 5m Savings and investment blilllliana af dalllars 0 As more money is saved by the bank the interest will go down but interest will go up if there is not enough money in the bank equilibrium Equilibrium in the loanable funds market occurs at the interest rate where the plans of savers match the plans of borrowers Equilibrium occurs when 0 Savings investments Investments require savings because every dollar borrowed requires a dollar saved 0 A decline in investor con dence 0 When the economy slows rms will reduce investment because they expect reduced sales in the future this re ects a decline in investor con dence 0 What Factors Shift the Supply of Loanable Funds 0 Income and wealth 0 Increase in income produce increase in savings 0 Less income people save less These shift the loanable funds supply curve 0 Historically US nancial markets have offered relatively greater returns than markets in other countries 0 US nancial markets are considered less risky than the global market 0 Time preferences 0 Consumption smoothing O o o o o o 0 From questions from smart work 0 Suppose that US citizens suddenly become wealthier As a result the for loanable funds and borrowers issue stocks and bonds to nance capital improvements 0 When baby boomers retire savings will decrease which will cause loanable funds to decrease which will cause interest rates to rise 0 are on the demand side and are on the supply side of loanable funds market 0 When the capital becomes more productive the equilibrium intrest rate and amount invested would both increase 0 An increase in capital productivity will lead to an increase in both equilibrium investment and equilibrium interest rate 0 Consumption smoothing occurs when people borrow and save to smooth consumption over their lifetime 0 The savings rate in the US in 1980 was lower than now


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