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Explain the loanable fund's theory in your own words including a discussion of the demand and...

Explain the loanable fund's theory in your own words including a discussion of the demand and supply curves for loanable funds, and their shapes and reason for these shapes, and how the equilibrium interest rate is determined.  Include in your explanation the parties that are the net suppliers and the parties that are the net demanders of loanable funds.  Also, discuss in detail the factors that affect the supply of loanable funds and the factors that affect the demand for loanable funds and their net effects.  

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Loanable funds theory is a theory of market interest rate .The demand and supply of loanable funds determined the rate of interst.According to this theory demand for loanable funds arises for Investment,hoarding and dissaving and wheras supply of fund from saving,dishoarding, disinvestment and bank credit.According to this theory equilibrium Interst rate is determined at a point where demand the demand and supply loanable funds curve intersect each other and at this point the demand for loanable funds is equla to the supply of loanable funds.Individual as well as businesses save more at high rate of interest they are the supplier and an entrepreneur will demand more fund for investment when the rate of interest is low.The demand and supply curve is an upward and downward sloping curve and the point of their intersection it shows equilibrium rate of interest.

Following factors affects the demand and supply of loanable funds like Changes in income of consumers,their tasts, substitution possibilities, Improvement in the technology,changes in the tax rate etc. are the common factors affecting both demand and supply of lonable funds.

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