Under the loanable funds theory of interest rates, the equilibrium interest rate in an economy is determined by the intersection of the supply curve of loanable funds from net savers (investors) and changes in the money supply and the demand curve for loanable funds by net borrowers (corporations, governments).

Question

Quizplus · Accepted Answer

This is a correct description of the loanable funds theory of interest rates, where the equilibrium interest rate reflects the balance between the supply of savings and the demand for borrowing. Changes in the money supply can affect interest rates by altering the supply of loanable funds, while changes in borrowing demand can shift the demand curve for credit.

Under the Loanable Funds Theory of Interest Rates, the Equilibrium