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Discuss the sources of demand for loanable funds, illustrating its equilibrium components in a graph of...

Discuss the sources of demand for loanable funds, illustrating its equilibrium components in a graph of the market for loanable funds.

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Answer #1

Demand for loanable funds comes from the government, consumers and the firms. The firms borrow money for purchasing new capital goods. The consumers demand loanble fund for their consumption purposes. When they want to spend in excess of their income they borrow. The government borrows for investment and for providing social welfare services. The rate of interest is the price paid for the loanable fund. higher the rate of interest, lower is the demand for loanable funds and vice- versa. This gives the downward sloping demand for loanable fund curve.

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