[资本市场和金融机构].2复习课程.pptVIP

Interest Rates;1. Interest Rate (i);Interest Rate;Supply and Demand for Loanable Funds; What determines the supply of loanable funds? The supply of loanable funds is determined by the interest rate offered to savers. A higher interest rate induces households to consume less today (save) in favor of greater consumption in the future. Firm also may have excess of cash that may be loaned (e.g., purchase of other firm’s bond issue) instead of invested (real assets) because of the non availability of projects with +NPV. ? What determines the demand for loanable funds? It comes from: consumers who wish to consume more today than tomorrow, individuals, financial and non-financial firms to invest in financial assets financial and non-financial firms to invest in real assets Demand depends on the interest rate at which these three groups can borrow. The lower the interest rate the higher the demand and vice-versa. ?;2. Fluctuation of interest rates What might cause the supply or demand for loanable funds to shift, and how would that affect interest rates? Factors that shift the demand curve. a) Recession: It decreases demand at all interest rates, shifting the demand curve inwards and causing the equilibrium interest rate to fall. ; b) An increase of the government deficit. C) Rise in expected inflation shifts the demand curve to the right. Same as (b) Nominal Interest rate = real interest rate + rate of expected inflation D) increase on the growth rate of population. Same as (b) e) Business cycle expansion. Expected increase in economic growth Same as (b) ;Examples that shift the Supply curve to the right Increases in the money supply by the Central Bank, causing the interest rate to fall. b) Increases in real personal income make people more willing to make loans (e.g. deposits in banks accounts) c) Increase in tax exempt financial instruments. Note: if we assume that the central bank controls the amount of mo