Lecture 8Price of Loanable FundsSupply of loanable funds-interest rate (price)-income and wealth-time preferences-Consumption SmoothingDemand for loanable funds-interest rate (price)-capital productivity-investor confidenceEquilibriumshortage ( in argintina), where government freeze the market during the inflation,quantity demanded will go down and firms leave the countryThe loanable Funds MarketCapital goods: (tools), completely different with financial capital.Investment: spending on capital, more investment, more equipment for the futureTime lineInvestment today future period payoffsborrow (from somebody who is saving)no investment—no future productionGood Savings/ loansBuyers/demanderssellers/suppliersPriceExample:Borrow $5, 000 for one yeardollar pice=$200Supply for loanable funds (savings)1. interest rate (price) (+)2. Income and wealth (+)Savings: Like luxuary good, if ppl earn more money, ppl save more3. Time preferences (-)now is preferred to lateryou must pay people to save4. Consumption SmoothingEducation Price earning year retireconsumptionincometheir difference: savingshift supply curveDemand for loanable funds:1. interest rate (price) (-)Rate up,---cost of borrow upcost of loan: rate15% few10% few more5% lots2. capital productivity (ie. new technology) (+)3.Investor
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