Aguila, Paulo Timothy

III-BSA

1. What is the impact of interest rate in terms of borrowing and saving?

Interest rate is the cause why we are borrowing money. the lower the interest rate, the higher the chance
money lenders will loan money while the higher the interest rate, the higher the chance the investors
are willing to invest money. Interest rate is either the cost of borrowing money or the reward for saving
it. It is better for the economy to have low interest rates to encourage more borrowing of money.

2. Identify the ways in which the supply and demand for money can shift both to the right and to the
left in loanable fund model.

Demand
The higher the nominal interest rate, the lower the demand for loanable funds while the lower the
interest rate, the higher the demand for loanable funds.

Supply
The higher the nominal interest rate, the higher the supply for loanable funds while the lower the
interest rate, the lower the supply for loanable funds.

1. Reasons for shifting

Demand
-Changes in perceived business opportunities
-changes in government spending (borrowing money will turn it shifts to the right - crowding out)
-changes in private spending behavior

Supply
-changes in capital inflows