Demand for Loanable Funds

Definition

The demand for loanable funds represents the quantity of loans that borrowers are willing and able to take at different interest rates. It shows the relationship between the interest rate and the amount of borrowing in an economy.

Related terms

Supply of Loanable Funds: The supply of loanable funds represents the quantity of savings that lenders are willing and able to provide at different interest rates.

Crowding Out Effect: The crowding out effect occurs when increased government borrowing reduces private sector borrowing by increasing interest rates.

Investment: Investment refers to spending on capital goods such as machinery, equipment, or buildings with the expectation of future returns. It is often financed through borrowing from loanable funds.