Loanable Funds Market

Loanable Funds Market

the market where savers supply funds for loans to borrowers

Indirect Transaction

Saver > Bank > Buisness

Interest Rate

The price of borrowing money

Outward shift of Demand/Inward shift of Supply

Increase in Interest Rate

Inward shift of Demand/Outward shift of Supply

Decrease in Interest Rate

Shifters of Demand

Investor Confidence and Productivity of Capital

Supply

Savers

Demand

Borrowers

Direct Transaction

Saver > Buisness

Shifters of Supply

Income and wealth, Time Preference (strong vs. weak), Consumption smoothing (young vs. old), Government (laws > incentives)

Crowding Out

a decrease in investment that results from government borrowing therefore increasing the interest rate

Fiscal Policy

Government policy attempts to manage the economy by controlling taxing and spending.

Stock Markets

buying and selling of shares of publicly traded companies

Bond Market

the market in which bonds issued by firms and governments are traded

Foreign Exchange Market

A market for converting the currency of one country into that of another country

commodity market

where buyers and sellers meet to exchange commodities

Stocks

Securities that represent part ownership or equity in a corporation

Bonds

A certificate issued by a government or private company that promises to pay back with interest the money borrowed from the buyer of the certificate

Treasury Securities

the bonds sold by the U.S. government to pay for the national debt

face value

Amount of principal due at the maturity date of the bond

Calculating Interest Rate

(face value - initial price)/(initial price)

default risk

the risk that the borrower will not pay the face value of a bond on the maturity date

Secondary Markets

markets in which securities are traded after their first sale

Fisher Equation

nominal interest rate = real interest rate + inflation