Authors libby rittenberg 706

Our model of the relationship between the demand for capital and the
loanable funds market thus assumes that the interest rate is determined in
the market for loanable funds. Given the demand curve for capital, that
interest rate then determines the quantity of capital firms demand.
Table 13.2 "Two Routes to Changes in the Quantity of Capital
Demanded" shows that a change in the quantity of capital that firms
demand can begin with a change in the demand for capital or with a
change in the demand for or supply of loanable funds. A change in the
demand for capital affects the demand for loanable funds and hence the
interest rate in the loanable funds market. The change in the interest rate
leads to a change in the quantity of capital demanded. Alternatively, a
change in the loanable funds market, which leads to a change in the
interest rate, causes a change in quantity of capital demanded.
Table 13.2 Two Routes to Changes in the Quantity of Capital Demanded
A change originating in the
capital market

A change originating in the
loanable funds market

1. A change in the demand for
capital leads to…

1. A change in the demand for or
supply of loanable funds leads to …

2.…a change in the demand for
loanable funds, which leads to…

2.…a change in the interest rate,
which leads to…

3.…a change in the interest rate,
which leads to…

3.…a change in the quantity of capital
demanded.

4.…a change in the quantity of
captial demanded.
A change in the quantity of capital that firms demand can begin with a
change in the demand for capital or with a change in the demand or supply
of loanable funds.

Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org

706