1. You don’t have to write this down
Assume, your friend wants to borrow $50 from you.
What would be at least 4 questions you would ask
them before you gave them the loan?

2. Today we will learn about…
The loanable funds market!! Ch: 29

3. EQUILIBRIUM IN THE LOANABLE FUNDS MARKET
Interest
Rate
Supply
Who?
Nom. i
Who?
Demand
Q*
Quantity of
Loanable Funds

4. Demanders in loanable funds mkt
• Consumer borrowers
• Institutional borrowers:
• Governmental borrowers:

5. Credit worthiness
• Lenders look at a borrower’s credit rating
•
•
•
•
Consumer credit report
3 private companies, Experian, Equifax, Transunion
https://www.annualcreditreport.com
Institutions & governments also have credit
reports
• Moody’s, S & P, etc

6. Suppliers in loanable funds mkt
• Consumer savers
• Institutional savers:
• Governmental borrowers
• Foreign governments
• Federal Reserve and other central banks

7. On a consumer credit report
•
•
•
•
•
Character
Capacity
Collateral
Capital
Conditions
• YOUR PERMANENT
RECORD!

8. Repayment calculator
• http://www.thecalculatorsite.com/finance/cal
culators/mortgagecalculator.php

9. A homeowner
What they own:
Asset
What they owe:
Liability
“T chart”

10. A little
accounting
2012

11. Accounting vocabulary
• Balance sheet
• A financial statement that summarizes a company's
net worth.
• The balance sheet must follow the following
formula:
• Assets = Liabilities + Shareholders' Equity

13. Accounting vocabulary
• Assets
• value of capital goods and cash owned by the
company
• BANKING WORLD: ???
• Liabilities
• Play video clip

14. Accounting vocabulary
• Liabilities
• value of money that is owed and company is
responsible to repay
• Debts and loans
• Shareholder’s equity
• Difference between company assets and liabilities
• IOW: What the company is worth
• Play video clip

15. In Macroeconomics
• This matters because banks and the Fed have assets
(loans and reserves) and liabilities (deposits)
• T charts
• Money multiplier
• Amount of money generated by banking transaction

16. For Example
• A person deposits $10,000 into a bank account
• Reserve Requirement: 10%
• Bank T Chart
Assets
Reserve:
Loans:
•
•
•
•
•
Money multiplier?
Reserve = 1/10
MM = 1/.10
MM = 10
So $10,000 X 10 has been created
Liabilities
$10,000

17. QE +10 Fed Accounting Assignment
• read Mankiw Ch 29
• Page 641, Problems: 1-5,8, 12

18. Loanable funds “Game”
•
•
•
•
2 borrowers, 1 lender each state
1st round: closed economy
2nd round: closed economy
3rd round: ???
Loans made in “basis points”
basis point =
.1%