THE DEMAND FOR LOANABLE FUNDS Econ 2105-C ,10/20/09
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THE DEMAND FOR LOANABLE FUNDS
Econ 2105-C ,10/20/09
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The New York TimesEastman Machine
• Family owned tool company• Buffalo, New York• Have been making cutting tools for the textile
industry for 120 years
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Robert Stevenson• President and CEO of Eastman
Machine• Last year had to lay off a dozen
workers due to financial decline• However, the dollar’s near 20%
decline since March has made Eastman Machine’s goods more competitive
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Increase in Expected Profit!!!
Mr. Stevenson and Eastman Machine are expecting a substantial increase in profit!!
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INCREASE IN EXPECTED PROFIT
• “Other things remaining the same, the greater the expected profit from new capital, the greater is the amount of investment and the greater is the demand for loanable funds.”
-- Textbook
• Hence, Demand for Loanable Funds Curve shifts rightward
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Real Interest Rate (% per year)
Loanable Funds (trillions of 2000 dollars)
SLF
DLF0
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Real Interest Rate (% per year)
Loanable Funds (trillions of 2000 dollars)
SLF
DLF0
DLF1