Loanable Funds Market In Australia

Introduction: The Reserve Bank of Australia is considering raising the target cash rate by 25 basis points in the near future. The purpose of this report is to analyze the positive and negative impact of the rise in interest rates on the Australian lending capital market. In order to analyze the impact of rising interest rates on the market of loanable funds, we will explore why interest rates may rise in the near future. Charts and charts have been used to explain the purpose of this report. Hopefully, by looking at these key elements, the user will be able to better understand the problem and follow the analysis behind me.

As shown in Figure 1, let's consider the market for loanable bank funds. The initial equilibrium (E0) rate is 8%, and the amount of borrowings and borrowings is 10 billion dollars. The enlarged monetary policy shifts the supply of financing-enabled funds from the initial supply curve (S 0) to S 1, resulting in equilibrium (E 1), an interest rate of 6% and a cash amount of $ 14 billion . On the contrary, the monetary tightening policy shifts the supply of financing capital from the initial supply curve (S 0) to S 2, resulting in equilibrium (E 2), an interest rate of up to 10%, and a loan amount of $ 8. Billion

Monetary policy affects the amount of available interest and loanable funds which in turn affect several factors of total demand. The tightening and tightening of monetary policy leading to an increase in interest rates and a reduction in loanable funds will reduce the two factors of total demand. Even if a rich company finds that investing these funds in financial investments with higher interest rates is more attractive than spot investment, borrowing money for companies is not attractive, so enterprise investment Will be reduced. In addition, higher interest rates will prevent consumers from borrowing large items like houses and cars. On the contrary, moderate or enlarged monetary policy that results in lower interest rates and increased loanable funds tends to increase commercial investment and individual loans to products.