Final answer:
Demand for loanable funds is determined by future income expectations, the need to finance large asset purchases, and business investments. Borrowers with greater confidence in repaying loans increase the demand for financial capital.
Step-by-step explanation:
The determination of demand for loanable funds is influenced by various factors that impact how individuals and businesses approach borrowing from financial markets. Here are three determinations of demand for loanable funds:
- Income Expectations: Borrowers tend to demand more loanable funds when they expect higher future income, such as college students who anticipate employment after graduation.
- Purchase of Assets: Loanable funds are also demanded for purchasing assets like homes and cars, where individuals prefer to spread the cost over time.
- Business Investment: Businesses demand loanable funds for projects that will pay off in the long run, such as building factories or undertaking R&D projects.
Consumers and businesses with greater confidence in their ability to repay are more likely to demand loanable funds, leading to a rightward shift in the quantity demanded of financial capital at a given interest rate.