ECON-E 202 Chapter Notes - Chapter 9: Loanable Funds, Time Preference, Investment Banking
Document Summary
Impatience: smoothing consumption, marketing and psychological factors. Individuals want to smooth consumption: people want to spend less than they earn during their working years, but spend more than they earn during retirement. Individuals are impatient: time preference: the desire to have goods and services sooner rather than later (all else being equal) - today feels more real than tomorrow. Marketing and psychological factors: often individuals save more if saving is presented as the natural or default alternative. The interest rate: higher interest rates usually call forth more savings. The demand to borrow: people borrow to smooth their consumption path and finance large investments. Individuals want to smooth consumption: many people borrow so that they can invest in their education. The interest rate: the lower the interest rate, the greater the quantity of funds demanded for investment as well as other purposes.
