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Market for Loanable Funds definitions

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  • Loanable Funds
    Income saved by households and made available for borrowing by investors and firms to finance investments.
  • Household Savings
    Portion of income not spent by individuals, which enters the financial system as a source for loans.
  • Investment
    Use of borrowed resources by firms or households to purchase capital goods or assets for future returns.
  • Interest Rate
    Cost of borrowing funds, expressed as a percentage, serving as the 'price' in the loanable funds market.
  • Supply Curve
    Graphical representation showing the relationship between interest rates and the quantity of funds households are willing to lend.
  • Demand Curve
    Graphical representation showing the relationship between interest rates and the quantity of funds investors wish to borrow.
  • Equilibrium Interest Rate
    Rate at which the quantity of funds supplied equals the quantity demanded, balancing savers and borrowers.
  • Quantity of Loanable Funds
    Total amount of funds available for borrowing or lending at a given interest rate in the market.
  • Financial System
    Network connecting savers and borrowers, facilitating the flow of funds for investment and consumption.
  • Borrower
    Individual or firm seeking funds from the market to finance purchases or investments, repaying with interest.
  • Lender
    Entity providing funds to others in exchange for future repayment plus interest, typically households or banks.
  • Real Interest Rate
    Interest rate adjusted for inflation, reflecting the true cost of borrowing and return on savings.
  • Market Equilibrium
    Point where supply and demand curves intersect, determining the prevailing interest rate and loanable funds quantity.
  • Shift in Supply
    Change in the amount of funds households are willing to lend at each interest rate, altering the supply curve.
  • Shift in Demand
    Change in the amount of funds investors wish to borrow at each interest rate, altering the demand curve.