What is the equilibrium interest rate and quantity in the capital financial market?
Video TranscriptSo the table shows, uh um, the amount of savings and boring in the markets for loans to purchase arms measured in millions of dollars at various interest rates. Now, what to find equal develop interest rates, quantity and capital financial markets on Now we can tell what's. Imagine that because of the shift in the perceptions of foreign investors to supply cough shifts so that there will be a $10 media unless supply that every interest rates. What's calculating new equilibrium interest rates on quantity and explain why the direction of the interest rate shifts makes intuitive sense. So I'm going to start one Toyota. So when you capital financial markets, savers are represented by the supply cough and the borders are represented by the demand cough. So in the capital financial markets Yeah, save us. I represented by the supply cough and then borrow waas are represented by the demand cough. So the intersection of the demand and supply coves determines. So when this intersect, any time is the equilibrium interest rates? Yeah, on quantity. That's which. The demand for funds is equal to the supply off phones. Demand for funds is equal to the supply off funds. So I didn't tell section of this supply and demand cause that's what a group of interest rates on quantity at which the fund demand for phones is equal to supply of phones. So now that we understand that back to the table to weekly bomb interest rates is the people of interest rates is 7% I switched. The quantity of boring, which is QD, is equal to the quantity of lending, which is cute s so and this is equal to 1 40 milion. So with seven million less supply that every interest rates, it is found that interest equilibrium interest rates, who is going to be 8% with 10 milion less supplied at every interest rate, the equilibrium interest rates is going to be 8%. Because the quantity of boring, which is Cuddy, is the quantity of boy, which is Cuddy is wanted to five. He calls to the quantity off lending, which is cute s so this requires toe 1 45 minus 10. So that is 1 35. That's quantity off. Boring. So now considering table we're giving after reducing the the 10 million on supply Tamerlan terminal supply every rate at 7%. The quantity demanded now would be 1 40 on, so the constantly demanded would be want 40 millions, which is no equals. It is constant supply because constantly supplied is 1 40 minus 10 milion and that's wanted see million. So Qantas supplies and I was constantly on demanded on the interest rates is equals 8%. So now the quantity. So whereas the interest with this was 8% the quantity demanded is 1 35 is equal to so the the table That shows that after reduction of 10 million supplies, every interest rates at a 7% rates. So this is for a 7% rates, right? So whereas the interest rates at 8% the constancy the man did is equal toe 1 35. Ondas equals the quantities off light, which is 1 45 minus 10 and thus 1 35 million. So it's interesting rate off 8%. The quantity supplies because the quantity Monday now the interest rates rates has risen from 7% to 8%. Right because off, after the reduction of the 10 milion on supplies, every interest rate, there's few months, there's fewer amounts available for supply, whereas demanded the quantity demanded is the same as before. So the interest with us reading from 7 to 8% because after the reduction off 10 million supply, that's every interest rate. There's female amounts available for for supply, so supply reduces and then the quantity demanded is the same as before, right. So after the reduction of 10 million supplied, every interest rate at 7% rate the quantity, um, the bandit is 1 40 million, as we can see on actually the quantity supplied which is wanted to millions on to meet the extra demand economy, the supply would increase its supply, the supply, we increase the supply. So the quantity the mandate is greater than the quantity supplied at 7% rates. So then that means that the supply as we increase their supply. So according to that, the supply we supply at the more I a prize so supplier, because they once more than they're supplying their supply would will increase price. Now the supply I will supply 1 45 minus 10 dollars understand million dollars, which is the quest wanting to five million anti our interest rates off than 7% which is on 8%. So at 8% the quantity supplied is now records to concede demanded. So therefore, market operations at 8% rate, which is now the new equilibrium, interest rates and nuclear bomb quantity. I wanted five milion in order to meet the extra demand. So the direction of the interest rates to shift shifting from 7% to 8% makes intuitive sense. So the shifts off interest bids from 7% to 8% makes intuitive sense. That's the answer. Show
In any market, the price is what suppliers receive and what demanders pay. In financial markets, those who supply financial capital through saving expect to receive a rate of return, while those who demand financial capital by receiving funds expect to pay a rate of return. This rate of return can come in a variety of forms, depending on the type of investment. The simplest example of a rate of return is the interest rate. For example, when you supply money into a savings account at a bank, you receive interest on your deposit. The interest the bank pays you as a percent of your deposits is the interest rate. Similarly, if you demand a loan to buy a car or a computer, you will need to pay interest on the money you borrow. Let’s consider the market for borrowing money with credit cards. In 2015, almost 200 million Americans were cardholders. Credit cards allow you to borrow money from the card's issuer, and pay back the borrowed amount plus interest, although most allow you a period of time in which you can repay the loan without paying interest. A typical credit card interest rate ranges from 12% to 18% per year. In May 2016, Americans had about $943 billion outstanding in credit card debts. About half of U.S. families with credit cards report that they almost always pay the full balance on time, but one-quarter of U.S. families with credit cards say that they “hardly ever” pay off the card in full. In fact, in 2014, 56% of consumers carried an unpaid balance in the last 12 months. Let’s say that, on average, the annual interest rate for credit card borrowing is 15% per year. Thus, Americans pay tens of billions of dollars every year in interest on their credit cards—plus basic fees for the credit card or fees for late payments. Figure illustrates demand and supply in the financial market for credit cards. The horizontal axis of the financial market shows the quantity of money loaned or borrowed in this market. The vertical or price axis shows the rate of return, which in the case of credit card borrowing we can measure with an interest rate. Table shows the quantity of financial capital that consumers demand at various interest rates and the quantity that credit card firms (often banks) are willing to supply.
The laws of demand and supply continue to apply in the financial markets. According to the law of demand, a higher rate of return (that is, a higher price) will decrease the quantity demanded. As the interest rate rises, consumers will reduce the quantity that they borrow. According to the law of supply, a higher price increases the quantity supplied. Consequently, as the interest rate paid on credit card borrowing rises, more firms will be eager to issue credit cards and to encourage customers to use them. Conversely, if the interest rate on credit cards falls, the quantity of financial capital supplied in the credit card market will decrease and the quantity demanded will fall. What is the equilibrium interest rate and quantity in the capital financial markets how can you tell?The equilibrium price is where the quantity demanded and the quantity supplied are equal. At an above-equilibrium interest rate like 21%, the quantity of financial capital supplied would increase to $750 billion, but the quantity demanded would decrease to $480 billion.
What is the equilibrium interest rate and quantity of money?Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied. Figure 25.10 “Money Market Equilibrium” combines demand and supply curves for money to illustrate equilibrium in the market for money.
What is the equilibrium interest rate?The equilibrium real interest rate (r∗) is the short-term real interest rate that, in. the long run, is consistent with aggregate production at potential and stable inflation.
How is the equilibrium interest rate in the market for money determined?The equilibrium rate of interest in the market for money is determined by the intersection of the vertical supply line and the downward-trending demand line.
What is financial market equilibrium?What Is Equilibrium? Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable.
What is the relationship between interest rates and supply of financial capital?A nation's money supply and interest rates have an inverse relationship. This means interest rates should be lower if there is a higher supply of money in a country's economy. Conversely, rates should be higher if the money supply is lower.
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