New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

ECON 202 Week 4 Loanable Funds

by: Ava Jamerson

ECON 202 Week 4 Loanable Funds Econ 202

Marketplace > University of Oregon > Economcs > Econ 202 > ECON 202 Week 4 Loanable Funds
Ava Jamerson
GPA 3.85

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Urbancic M
Class Notes
25 ?




Popular in macroeconomics

Popular in Economcs

This 6 page Class Notes was uploaded by Ava Jamerson on Saturday November 7, 2015. The Class Notes belongs to Econ 202 at University of Oregon taught by Urbancic M in Summer 2015. Since its upload, it has received 15 views. For similar materials see macroeconomics in Economcs at University of Oregon.


Reviews for ECON 202 Week 4 Loanable Funds


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 11/07/15
Week 4 pg. 268-294 What is the Loanable Funds Market?  financial market­where firms and governments obtain funds or financing (primarily  household)  analyze financial markets in context of loanable fund market  loanable funds market­where savers supply funds for loans to borrowers  no physical location ex. investment banks, mutual fund firms, commercial bank  if you have checking or savings at the bank, you are a supplier of loanable funds  demanders of funds are firms and governments  firms must borrow today to generate future GDP  you need to save to sustain future production  advantage of this demand and supply is that i clarifies role of interest rates  interest rate­price of loanable funds  two different views of interest rates: view of saver and view of borrower  interest rates as a reward for saving  o interest rate is return a saver gets for supplying funds o the higher the interest rate, the greater the reward o interest rate­opportunity cost of consumption o the higher the interest rate, greater incentive (savings line is positive)  interest rates as a cost of borrowing  o borrowers­interest rate is the cost of borrowing o firms borrow only if they can pay back the money and interest  o the lower the interest, better chance firm can pay you back o lower interest=greater demand for loanable funds (demand=investment is  negative)  how inflation affects interest rates  o inflation affects interest you receive o when deciding about saving and borrowing, people look at real interest rate o real interest rate­interest rate corrected for inflation o nominal interest rate­interest rate before inflation correction o Fisher equation= nominal interest rate­inflation rate o higher inflation= higher nominal rates to compensate lenders for the loss of  purchasing power o nominal interest rate = real interest rate + inflation rate o high the rate of inflation, higher the nominal interest rate o usually we look at nominal interest rates because o  they are stated in interest rates  steady inflation means the difference between real and nominal is small What Factors Shift the Supply of Loanable Funds?  three factors that determine level of supply curve  wealth, time preferences, and consumption smoothing  o income & wealth o  as nation gains wealth, more savings  foreign savings are in US loanable funds market  b/c US market less risky, and size of the economy o time preferences o  time preference ­people would rather receive funds sooner than later  strong time preference­want to receive funds sooner, vice versa with weak  time preference  people with strong time preference save less  ex. person not going to college because they want to earn income in that  time  definitely payoff in getting college education o consumption smoothing o  in lifetime­income varies drastically  income levels low when young, highest in middle, low at the end  borrowing, saving, dissaving (withdraw funds from previous accumulated  savings)  by doing that^ we smooth out income and consumption, creating a normal  consumption patter­consumption smoothing  if stable amount of people moving into each life stage­savings is stable  problem: baby boomers, causing record retirement, less saving o economics in the real world: why is the savings rate in the US falling? o  savings rate in US is falling, time preference climbing  savings rate­personal savings as a portion of disposable (after­tax  income)  could be because measurement issue  ex. data doesn't include house purchases, or stock and bonds as personal  savings What Factors Shift the Demand for Loanable Funds?  look at demand by looking at borrowers  two factors that cause shifts in demand for funds, productivity of capital and investor  confidence  productivity of capital  o ex. firm deciding whether to invest in machine (capital) o they have to determine if return is greater than interest rate o then you realize you only get return rate of 4% o BUT a new machine comes out, more expensive, but return of 7% o capital=productive, demand for loans increases vice versa  investor confidence  o demand depends on beliefs or expectations of investors o if it believes sales will increase, it invests more today o investor confidence­measure of what firms expect of future economic activity   interest rate only leads to movement along the demand curve, no shift in loanable funds How Do We Apply the Loanable Funds Market Model?  real world applications  consider equilibrium, then look at past and future view of US loanable funds market  equilibrium  o occurs where plans of saver=plans of borrowers, or supply=demand o savings=investment o investment requires saving because every dollar borrowed requires a dollar  saved o account for changes in market functions by using shifts in supply and demand o decline in investor confidence o  when economy lows, firms reduce investment due to low expectations for  sales  ex. great recession 2007  lower investor confidence=lower interest rates=lower equilibrium level of  investment o a decrease in the supply of loanable funds o  baby boomers  leads to decrease in supply of loanable funds=lower investment=lower  GDP  but other factors may change this ex. foreign investment  Conclusion  interest rates not set by government, there is influence though  usually set by market through supply and demand  investment is result of equilibrium in market for loanable funds  savers supply funds to support loans  borrowers are investors who want loans  equilibrium determines investment and interest rate in economy


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Janice Dongeun University of Washington

"I used the money I made selling my notes & study guides to pay for spring break in Olympia, Washington...which was Sweet!"

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.