You don’t have to write this downAssume, 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?

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

EQUILIBRIUM IN THE LOANABLE FUNDS MARKET

Supply

Demand

InterestRate

Quantity of Loanable Funds

Nom. i

Q*

Who?

Who?

Demanders in loanable funds mkt

• Consumer borrowers

• Institutional borrowers:

• Governmental borrowers:

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

Suppliers in loanable funds mkt

• Consumer savers

• Institutional savers:

• Governmental borrowers

• Foreign governments

• Federal Reserve and other central banks

On a consumer credit report

• Character

• Capacity

• Collateral

• Capital

• Conditions

• YOUR PERMANENT RECORD!

Repayment calculator

• http://www.thecalculatorsite.com/finance/calculators/mortgagecalculator.php

A homeowner

What they own:

Asset

What they owe:

Liability

“T chart”

A little accounting

2012

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

Accounting vocabulary• Assets

• value of capital goods and cash owned by the company

• BANKING WORLD: ???

• Liabilities

• Play video clip

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

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

For Example

• A person deposits $10,000 into a bank account• Reserve Requirement: 10%• Bank T Chart

• Money multiplier?• Reserve = 1/10• MM = 1/.10 • MM = 10• So $10,000 X 10 has been created

Assets LiabilitiesReserve: $10,000Loans:

QE +10 Fed Accounting Assignment

• read Mankiw Ch 29

• Page 641, Problems: 1-5,8, 12

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%