Macro 4.7 Loanable Funds Market

[@duirell7650]

As much as I like Jacob Clifford this guy explains way slower and better. They way he teaches just helps me understand better

[@ReviewEcon]

I'm so glad to have helped! 😄

[@ryanklose3263]

Your videos are a lifesaver for my AP Macro class! Thank you so much for putting this up for all to see!

[@ReviewEcon]

You're very welcome! Good luck on your exams!

[@glennwatson3313]

Its seems to me the important thing about the Loanable Funds graph is how it interacts with the AD/AS model. It is often the second graph drawn in the first FRQ.

[@ReviewEcon]

Definitely. I plan to cover those connections when I get to the crowding out/deficit video.

[@ffatimau]

thank you so much for your clear presentation actually your video is the only one that helped me to understand the chapter. keep going

[@ReviewEcon]

You're very welcome! Good luck with your exams!

[@myplace571]

random question related to this, when theres excess supply, demand shifts right causing interest rates to fall. however, when theres excess demand wouldnt that shift supply to the right? how is it that interest rates rise?

[@ReviewEcon]

I'm not exactly sure what you are asking. Excess supply usually means surplus ( and the market will find a lower equilibrium interest rate). Excess demand usually means shortage (in the market will find the higher equilibrium interest rate). Shifts of supply and or demand will cause the equilibrium rate to increase or decrease depending on the shift. Generally, the assumption will be that we are at equilibrium and move to the new equilibrium after a shift. Good luck!

[@ekhemka-x6q]

Does the marginal propensity to save affect the supply of loanable funds?

[@ReviewEcon]

Definitely! As the MPS increases (or MPC decreases), the supply of LF will shift to the right. Good luck on your exam!

[@liuuu534]

Thank you 😊

[@ReviewEcon]

You're welcome! Good luck with your studies!

[@NgoHoangNguyenKhoia]

i think when the government runs on deficit, the supply and demand curves should shift at the same time? cause when there is a budget deficit it decreases the public saving (decrease supply) and in order to spend more than what they have, they need to borrow money (increase demand). I'm confused, hope you can help me. Tk you

[@ReviewEcon]

Depending on what your professor, teacher or book does, shift that curve. It's two different theories (don't use both in your analysis). The government either takes from the supply, OR they demand loans along side businesses. Don't shift both, but on the AP exam, you can shift either curve. I cover both here to be consistent with whatever your teacher or book covers. I hope that helps!

[@laurenlewis5907]

i guess i’m just confused because i was thinking if consumers have more income they will spend more and therefore save less where as if they have less income they will save more and spend less??

[@ReviewEcon]

Sometimes human behavior is counter intuitive. 😄 Good luck on the exam!

[@aliarowberry]

Why is the productivity of new capital a demand shifter? Wouldn't that be a supply shifter?

[@ReviewEcon]

The supply of loanable funds is money available for loans. Demand is primarily businesses wanting to borrow money so they can purchase physical capital. I call the supply curve the savings supply and I call the demand curve investment demand. I believe this helps keep it all straight. In new investments will be more productive. That means businesses see higher profit potential for new investments if they want to purchase new investments (new physical capital) they must demand loanable funds to pay for it. I hope that helps!

[@micosstar]

thanks

[@ReviewEcon]

You're welcome!

[@_httpantwon]

You talk too fast. I can't keep up :(

[@ReviewEcon]

Just trying to fit it all onto the video without making it twice as long. 😅 Try slowing the speed of the video under settings (the gear at the bottom of the player).