Question

In the market for loanable funds, supply and demand analysis could allow you to determine two elements - quantity of loanable funds and_____

Answer 1

The market for loanable funds analysis determines the quantity of loanable funds and the interest rate, which is the cost of borrowing. Suppliers provide financial capital by saving, and demanders require capital to borrow. Equilibrium is found where supply meets demand.

Step-by-step explanation:

In the market for loanable funds, supply and demand analysis could allow you to determine two key elements: the quantity of loanable funds and the interest rate. The supply side represents those who save money or provide financial capital, such as individuals or businesses. Conversely, the demand side consists of those who need to borrow money. The price in this market is referred to as the rate of return, or more commonly, the interest rate, which is the cost of borrowing money.

The equilibrium in the market for loanable funds occurs where the supplied amount of capital by savers meets the demanded amount by borrowers. The intersection signifies both the equilibrium quantity and the equilibrium interest rate. When the demand for loanable funds increases, for instance, due to businesses desiring to invest in new facilities, the interest rate generally increases if the supply remains constant. Conversely, if there is a rise in savings among the population, this could increase the supply of loanable funds, potentially lowering the interest rate.

Answer 2

In the market for loanable funds, supply and demand analysis determines the quantity of loanable funds and the interest rate. Interest rates serve as the 'price' of the financial product, while the quantity represents the flow of capital between savers and borrowers.

Step-by-step explanation:

In the market for loanable funds, supply and demand analysis can determine two key elements: the quantity of loanable funds and the interest rate.

The price in this context is synonymous with the rate of return or the interest rate that is received. This interest rate functions as the cost of borrowing or the benefit of lending money. The quantity, on the other hand, refers to the total amount of money that flows from suppliers, such as savers or investors, to demanders, such as borrowers. In the financial markets, those providing savings or investments are on the supply side, while those seeking to borrow funds are on the demand side.

Supply and Demand in Financial Markets

By analyzing the supply and demand curves in the market for loanable funds, economists and analysts can predict changes in both the quantity of loanable funds and the prevailing interest rates. For instance, if demand for loanable funds increases due to growth in businesses seeking capital, and supply remains constant, the interest rate will likely rise. Similarly, an increase in supply, perhaps due to higher savings from the public, can lead to a decrease in interest rates if demand is static.

The complete question is: In the market for loanable funds, supply and demand analysis could allow you to determine two elements - quantity of loanable funds and_____ is: