Question

What are those four most important factors determine supply of loanable funds? What are those four important factors determine the changes in the supply of loanable funds?

Answer 1

There are basically four major players in the market for loanable funds that supply funds in the market. They determine the level of funds supplied in the market. This include individual households who have private saving, Government and related institution who have public saving or budget surplus, businesses who have retained earnings, and federal reserve who has money supply.

Increasing private saving public saving retained earnings or money supply increases the supply of loanable funds in the market and shifts the supply curve to the right. This increases the quantity of funds and decreases the rate of interest. This event is called change in the supply and not the change in quantity supplied. Similarly when there is a decline in private saving public saving retained earnings or money supply interest rate is likely to increase and quantity will decline when supply curve will shift to the left