Ch' 5: Loanable Funds Theory

1
Ch. 5 Loanable Funds Theory

• Demand Supply of Loanable Funds
• DSU demand
• SSU supply
• Factors Affecting Demand
• Eco. Activity
• Govt. Deficit/Surplus
• Foreign Borrowers
• Inflation/Deflation

2
(No Transcript)
3
(No Transcript)
4

• Factors Affecting Supply
• Federal Reserve
• Buy T-Bills expand supply, interest rates down
• Sell T-Bills reduce supply, interest rates up.
• Foreign Investors
• Inflation/Deflation
• Fisher Effect IN IR Inflation (expected)

5

• Index-linked bonds

6
(No Transcript)
7

• What are I Bonds?
• I Bonds are a new type of bond designed for
  investors seeking to protect the purchasing power
  of their investment and earn a guaranteed real
  rate of return. I Bonds are an accrual-type
  security--meaning interest is added to the bond
  monthly and paid when the bond is cashed. I Bonds
  are sold at face value--you pay 50 for a 50
  bond--and they grow in value with
  inflation-indexed earnings for up to 30 years.
• See www. libertybank.new/ibonds.html

8

• Homework
• Forecast the 30-year bond rate on the last day of
  class.