Post on 14-Jul-2015
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?
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
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: