Loanable funds market | Financial sector | AP Macroeconomics | Khan Academy

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How do savers and borrowers find each other? In the market for loanable funds! In this video, learn how the demand of loanable funds and the supply of loanable funds interact to determine real interest rates. AP(R) Macroeconomics on Khan Academy: Macroeconomics is all about how an entire nationÕs performance is determined and improved over time. Learn how factors like unemployment, inflation, interest rates, economic growth and recession are caused and how they affect individuals and society as a whole. We hit the traditional topics from an AP Macroeconomics course, including basic economic concepts, economic indicators, and the business cycle, national income and price determination, the financial sector, the long-run consequences of stabilization policies, and international trade and finance. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything kzbin.info_....
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[@badrmaher5454]

You simplified the whole thing in two words Supplies=savers Demand = borrowers Thank you❤️

[@bronzor1718]

AP macro test anyone?

[@alexcantin2246]

How'd you do?

[@PunmasterSTP]

How'd the AP test go?

[@Trapahead234]

:(

[@agentxstudiosofficial]

@@Trapahead234 2 days yikes

[@masokys]

Bless you, Mr. Sal

[@akotofiq8394]

🙏🏻 thanks for these videos

[@victoriaowen7869]

Is there a video on how this is impacted by elasticity?

[@RTtan98]

thanks for this

[@angelesdelgado9997]

Sal, I am amazed at how easy you make it; however, when you explain examples of similar strategies please mark them on the graph. Think that we all need simplified explicit examples. Thank you.

[@thulanimthembu7182]

Really impressed

[@JustBeClever]

It’s too bad that the suppliers (savers) of loanable funds get screwed over by a .01% interest rate while the banks take those funds and loan them for up to a 20% interest rate depending on borrower credit.

[@glennwatson3313]

If your bank is charging you 20% on a simple loan get a new bank.

[@muslihahmunahar759]

i am super understand! thank you so much!

[@ParthivDesaii]

what if, govt increase taxation on interest and dividend ?

[@glennwatson3313]

If Congress increases taxes on interest then savers save less. If Congress increases taxes on dividends then people who buy stock buy less stock.

[@simonebeerendonk3572]

omg loveyou

[@srilaakha8865]

Suppose government provides tax rebate to small business on their business-related expenditure. Assuming no change in government budgetary position, this policy is likely to have a positive effect on household (or private) saving in the economy (Hint: think about the effect of this policy in Loanable Funds Market) how do i answer this question

[@sarahkhan8526]

Did u find ge answer? If yes, pls do tell. I m curious too

[@riteshraj6037]

In this scenario supplier is more and demand is less that's shift DL to left and reduce the wages

[@PunmasterSTP]

Asteroid mining? Elon, did you hear that?

[@WorldWideSk8boarding]

is this the same as money demand and money supply ?

[@andylorimer1407]

no

[@WorldWideSk8boarding]

@@andylorimer1407 so the demand for borrowing money(L(r,y)) and the supply of money being lent(vertical line representing money in circulation) is not the same as “money demand” & “money supply” ? I just thought its the same thing, except that one is represented by interest rates & output while the graph in this this video is represented by r & quantity of money

[@sanchitadas47]

So is the interest rate of savers and borrowers same ?

[@andylorimer1407]

savers like higher interest rates, the loans they give out will have a higher return, where as borrowers favor lower rates as they can borrow money for cheaper.

[@PunmasterSTP]

At equilibrium, yes, it should be the same for both.

[@bucko2307]

Is this the right video Hartman?

[@PunmasterSTP]

I came across your video and I was just curious. Who's Hartman?

[@kingcobra7700]

@@PunmasterSTP I am also curious. Who's Hartman?

[@PunmasterSTP]

@@kingcobra7700 Sadly I'm not sure we'll ever know. @bucko2307 had one video on his channel, which mentioned a "Cameron", but I have no idea about this Hartman character.

[@Charvak-Atheist]

but here what is the role of Central Banks ?

[@ktrnaman]

no central bank in classical model as it is not autonomous in that period.

[@joecurran2811]

Austrian economists sat the central banker keep interst rates too low for too long leading to a credit bubble and subsequent crash. Other economists, probably Marxists aside, tend to be more positive.

[@johnbiesterfeldt5044]

But banks don't lend out our deposits. Banks create loans 100% from credit, which means that there is no limited pile of "loanable funds," which also means that the supply v. demand function doesn't apply here. And we can see this, because interest rates really don't move with demand in the way a S v D model would predict.

[@teddyj.3198]

Nailed it

[@PunmasterSTP]

I thought that banks *do* loan out deposits; they just have to keep part of them on-hand because of the reserve ratio.

[@johnbiesterfeldt5044]

@@PunmasterSTP Nope. Reserves and bank deposits are actually two very distinct types of money. Reserves are liabilities of the central bank, and bank deposits (account balances) are liabilities of the commercial bank. Think of it like cash and poker chips. You play the game with the chips, but you settle up at the end of the game with cash. Just like we transact (mostly) with bank account balances, and the banks settle up with reserves.

[@joecurran2811]

That is correct but where supply and demand DOES come into it is there has to be a demand of borrowers who are willing yo borrow and a supply of banks who will create the credit. Additionally, interest rates also affect the amount of credit in the system, at least indirectly.

[@tim1ver170]

Fourth!!!!

[@shaahin6818]

This is very wrong. No bank lends deposits. They create money when they lend

[@PunmasterSTP]

I think it's fair to say that a bank "lends out deposits". When people save money at banks, the banks would have to keep some of that money on-hand as reserves (due to the presence of the reserve ratio) and then they could lend out the rest. Because of the multiplier effect, this would effectively create more money in the economy, but I think it's still okay to think of deposits as being lent out.

[@johnbiesterfeldt5044]

@@PunmasterSTP Lending accumulated money would not increase the amount of money in the economy (how could it?). It WOULD increase the amount of *credit*, though. That theory (which is incorrect, but...) would have "real" money zipping around in the economy, with about 10x as much in bank accounts (with no "real" money backing up those balances, save for a bit "in reserve"). Now - make the logical leap, and we are describing a credit creation system, as opposed to a fractional reserve system or a financial intermediary system. There is "real" money, and there is credit. Governments and their central banks create "real" money (reserves), and banks create credit. Banks cannot create reserves - they have accounts at the central bank (who is also the settlement agent), and these accounts are used for interbank settlement. What deposits do for banks is this: they bring in reserves, which banks need for settlement (and for meeting reserve requirements). But it is wrong to think that reserves are loaned out. A bank can create millions in new loans, but as long as money coming into the bank is approximately equal to money going out, very few reserves will ever be needed for net settlement.

[@PunmasterSTP]

​@@johnbiesterfeldt5044 Thanks for your message and I think I am understanding what you are saying. I agree that it is the government and central banks that create money and that commercial banks can only create credit. But metaphorically, I think it's reasonable to say that commercial banks create "money", at least in a loose sense. I think it's a situation somewhat similar to virtual memory. A program running in a computer might have no idea of how much RAM is actually installed in the system, and how much space (if any) is dedicated to the swap file on the harddrive. As far as that program is concerned, it just has access to a certain amount of memory, no matter how much is "real" (actual RAM) or "virtual" (on disk). Philosophically, I think you could even say that governments don't create money. It's the will of the people or a social contract that ultimately establishes the government's legitimacy and "credits" it with the ability to create a currency which can serve as a medium of exchange. Like a lot of things in life, I think situations with money and memory can be subject to many points of view...

[@johnbiesterfeldt5044]

@@PunmasterSTP Yes, banks absolutely do create money - M1 money, the stuff we transact with - and they create the vast majority of that. But we need to be clear in differentiating between bank-created and government-created money, even though there is some intersection there. I found it helpful to start with bank-created money, since banks can operate without any government-created money at all (or a central bank). They can create loans for borrowers by expanding their balance sheets (which is why we call it "credit money"), and they can settle up interbank transactions via settlement accounts, where Bank A creates, say, a $100K balance for Bank B, and Bank B does the same for Bank A. Settlement is then completed by adding or subtracting from those settlement accounts as net interbank transactions dictate. Banks also used to print up their own banknotes. No govt. help necessary, but central banks are very helpful as both a settlement agent and as a backstop to prevent bank failures. Govt.-created money sits atop banks on the hierarchy. The central bank is the banks' bank, and the government's bank. Central banks are not subject to debt failures, as long as they only deal in their own currency. They can operate in the red. If you are interested, I go over all of this stuff in detail on Quora.

[@shaahin6818]

@@PunmasterSTP This has been rejected over and over, even BoE and Fed published articles to refute the money multiplier and fractional reserve banking. Richard Werner 2014, 2016 showed it in the first empirical study as well. This video is misinformation.

[@mehrabhossain2792]

Kisses

[@kerminthefrogandrobotdash4812]

Hey

[@maahamchaudhry8541]

second!!!!