Portfolio Balance vs. Loanable Funds: A Teaching Note
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Is the real interest rate set by the demand vs. supply of all savings, private and public? Or is it set by the demand for money vs. bonds emanating from liquidity preference and (outside) wealth demand? Got to answer this in anticipation of teaching this Fall semester.
Usually, I use fthe latter in my classes, to illustrate portfolio crowding out arising from government budget deficits. Here’s an example of how I explain it, couched in IS-LM.
The loanable funds picture of increasing dema
Usually, I use fthe latter in my classes, to illustrate portfolio crowding out arising from government budget deficits. Here’s an example of how I explain it, couched in IS-LM.
The loanable funds picture of increasing dema
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