Loanable Funds Market Dynamics

Market for Loanable Funds

Determines long-run real interest rate and investment quantity

Savers

Suppliers who provide funds for businesses to borrow

Investors

Demanders who seek funds to finance investments

Financial Sector

Where savers and investors interact

Long Run Real Interest Rate

Evolves slowly over years based on saving and investment balance

Short Run Real Interest Rate

Fluctuates monthly due to Bank of Canada adjustments

Supply Curve

Upward sloping curve in the loanable funds market

Demand Curve

Downward sloping curve in the loanable funds market

Neutral Real Interest Rate

Operates in a neutral economy, neither above nor below potential

Technological Advances

Shift investment line right due to advancements

Expectations

Optimistic outlook shifts investment right, pessimistic shifts left

Corporate Taxes

High tax rate shifts investment left, low tax rate shifts right

Lending Standards and Cash Reserves

Less restrictive standards and sufficient reserves increase investment

Personal Saving Rate Change

Affects supply line in the loanable funds market

Budget Surplus/Deficit

Impacts government saving and influences supply lines

Global Shocks

Shift foreign saving and affect supply of loanable funds