Explain briefly the aspects of the loanable funds market, showing how savers are matched with...

Question:

Explain briefly the aspects of the loanable funds market, showing how savers are matched with borrowers with a suitable diagram. (You will receive only half points if you just provide the diagrams)

Is world growth sustainable? Explain

What do we mean by diminishing returns to physical capital? Is it positive or negative? Explain why?

Physical Capital

Physical capital is the production factor that can be seen and touched like machinery or buildings. Physical capital is a part of the factors of production and is also known as the physical production function.

Answer and Explanation:

Loanable funds market comprises of demand for loanable funds and supply of loanable funds depending uon the rate of interest prevailing in the market.

Demand for loanable funds refers to the inverse relationship between the amount of loans demanded by individuals or businesses or governments and the rate of interest. Higher the interest rate, lower will be the demand for loanable funds.

Supply of loans refers to the direct relationship between the supply of funds and the rate of interest. As the supply of loanable funds increases in the market, the rate of interest increases so as to maintain a balance in the economy.

The point where the demand and supply of loanable funds are equal, that is, the point at which the demand and supply curves of loanable funds intersect each other, it called the equilibrium point.

No, the world growth is not sustainable. It is more focussed towards meeting the needs of the present generation and is not focussing on the needs of the generations to come.

Diminishing returns in a production function occurs when by increasing an input, the output increases by less than amount of increase in input. Diminishing returns in physical input occurs when by increasing the proportion of capital in your production yields less than the proportionate increase in the output.

It is usually positive but may become negative.


Learn more about this topic:

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Loanable Funds: Definition & Theory

from Introduction to Business: Homework Help Resource

Chapter 25 / Lesson 29
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