Saturday, August 29, 2009

Consumer demand for loanable funds

Consumer demand loanable funds in order to purchase a wide variety of goods and services. Recent research indicates that consumers are not particularly responsive to the rate of interest when they borrow but focus instead principally upon the "nonprice"terms of a loan, such as the down payment, maturity, and size of installment payments. this implies that consumer demand for credit is relatively inelastic with respect to the rate of interest. Certainly a rise in interest rates leads to some reduction in consumer demand for loanable funds, while a decline in rates stimulates some additional consumer borrowing. however, along the consumer‘s relatively inelastic demand schedule, a substantial change in the rate of interest must occur before consumer demand for funds changes significantly.

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