The Loanable Funds Theory: Explaining Interest Rates in Economics

The video explores the loanable funds theory, an economic concept explaining how interest rates are determined by the supply and demand for credit. It contrasts with other theories like Keynes' liquidity preference and the classical savings-investment model. The theory considers the broader sources of funds, including bank credit, and how these affect interest rates. It discusses the factors influencing both the demand and supply of loanable funds, such as investment, hoarding, and savings. The video concludes by explaining how the market for loanable funds determines equilibrium interest rates.

Which economic theory expands on the classical savings and investment model by considering a broader definition of funds?

• Keynesian Theory

• Liquidity Preference Theory

• Loanable Funds Theory

• IS-LM Model

What does the loanable funds theory include that the classical model does not?

• Government spending

• Bank credit creation

• Consumer preferences

• Tax policies

Who are the primary demanders of loanable funds?

• Only consumers

• Consumers, firms, and governments

• Only banks

• Only firms

Which factor is NOT a determinant of the demand for loanable funds?

• Investment

• Depreciation

• Hoarding

• Dissaving

What happens to the demand for loanable funds when interest rates decrease?

• It fluctuates randomly

• It remains unchanged

• It decreases

• It increases

Which of the following is a factor that influences the supply of loanable funds?

• Consumer preferences

• Bank credit

• Government policies

• Technological advancements

How does a decrease in interest rates affect savings?

• Increases savings

• Decreases savings

• Causes savings to fluctuate

• Has no effect

What is the relationship between interest rates and the supply of loanable funds?

• Inverse relationship

• Random relationship

• Direct relationship

• No relationship

What determines the equilibrium interest rate in the loanable funds market?

• Government intervention

• Supply and demand of loanable funds

• Bank policies

• Consumer spending

What happens to interest rates if the supply of loanable funds decreases?

• Interest rates increase

• Interest rates decrease

• Interest rates remain the same

• Interest rates fluctuate