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.

How do changes in the demand for loanable funds affect the interest rate?

What is the impact of bank credit on the supply of loanable funds?

Describe the equilibrium interest rate in the context of the loanable funds market.

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