In the loanable funds framework, who supplies funds?

In the loanable funds framework, who supplies funds?

• A. Lenders
• B. Borrowers
• C. Central bank
• D. Government

Answer: (A)

In the loanable funds framework, funds come from savers who choose to lend out their excess income. These lenders supply the loanable funds, and their willingness to save increases when the real interest rate rises, which is why the supply curve slopes upward in this model. Borrowers demand funds to finance investment, and the interest rate adjusts to balance saving and investment. While the central bank or the government can influence overall liquidity and policy, the source of the funds in the basic picture is the lenders—savable funds provided by savers.

In the loanable funds framework, funds come from savers who choose to lend out their excess income. These lenders supply the loanable funds, and their willingness to save increases when the real interest rate rises, which is why the supply curve slopes upward in this model. Borrowers demand funds to finance investment, and the interest rate adjusts to balance saving and investment. While the central bank or the government can influence overall liquidity and policy, the source of the funds in the basic picture is the lenders—savable funds provided by savers.