Supply of loanable funds:
It is upward sloping – at higher interst rates of supply is greater. The supply of loanable funds comes from householdsavings, business sector saving firms, bank credit, government and central credit and foreign savings.
Household savings are the chief source for lending. Mostly these are available through banks.
Business sector's saving firms may retain some earnings for investment and meeting depreciation needs. These savings are little effected by changes in the rate of interest.
Bank credit is a big cource of money supply to the loanable funds. Banks make advances to the people and create deposit money.
Government and central bank supply funds – government through budget and central bank by increasing money supply.
Foreign saving are a source of supply of funds.
All these sources of the supply of loanable funds aredirecly related to loanable funds. The higher the rate of interest the larger the supply of loanable funds.
There is no doubt high rate of interest is to save more people but that is not always the case. There are people in the world which save even if the rate of interest is zero. But as their number is not very large so saving of these people is nt about the demand of loanable funds. Thus, rate of interest must be high to equalate the supply of loanable funds with the demand for it.
It is upward sloping – at higher interst rates of supply is greater. The supply of loanable funds comes from householdsavings, business sector saving firms, bank credit, government and central credit and foreign savings.
Household savings are the chief source for lending. Mostly these are available through banks.
Business sector's saving firms may retain some earnings for investment and meeting depreciation needs. These savings are little effected by changes in the rate of interest.
Bank credit is a big cource of money supply to the loanable funds. Banks make advances to the people and create deposit money.
Government and central bank supply funds – government through budget and central bank by increasing money supply.
Foreign saving are a source of supply of funds.
All these sources of the supply of loanable funds aredirecly related to loanable funds. The higher the rate of interest the larger the supply of loanable funds.
There is no doubt high rate of interest is to save more people but that is not always the case. There are people in the world which save even if the rate of interest is zero. But as their number is not very large so saving of these people is nt about the demand of loanable funds. Thus, rate of interest must be high to equalate the supply of loanable funds with the demand for it.
