Authors libby rittenberg 704
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acquisition of capital by demanding more loanable funds, shifting the
demand curve for loanable funds to D2 in Panel (a). The interest rate thus
rises to r2. Consequently, in the market for capital the demand for capital is
greater and the interest rate is higher. The new quantity of capital
demanded is K2 on demand curve D2.
Figure 13.4 Loanable Funds and the Demand for Capital
The interest rate is determined in the loanable funds market, and the
quantity of capital demanded varies with the interest rate. Thus, events
in the loanable funds market and the demand for capital are
interrelated. If the demand for capital increases to D2 in Panel (b), the
demand for loanable funds is likely to increase as well. Panel (a) shows
the result in the loanable funds market—a shift in the demand curve for
loanable funds from D1 to D2 and an increase in the interest rate
from r1 to r2. At r2, the quantity of capital demanded will be K2, as
shown in Panel (b).
Changes in the Loanable Funds Market and the
Demand for Capital
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
704
