DETERMINATION OF INTEREST RATES 29

2-1 Loanable Funds Theory, 29 2-1a Household Demand for Loanable Funds, 30 2-1b Business Demand for Loanable Funds, 30 2-1c Government Demand for Loanable Funds, 32 2-1d Foreign Demand for Loanable Funds, 32 2-1e Aggregate Demand for Loanable Funds, 33 2-1f Supply of Loanable Funds, 33 2-1g Equilibrium Interest Rate, 35

2-2 Factors That Affect Interest Rates, 37 2-2a Impact of Economic Growth on Interest Rates, 37

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2-2b Impact of Inflation on Interest Rates, 38 2-2c Impact of Monetary Policy on Interest Rates, 39 2-2d Impact of the Budget Deficit on Interest Rates, 40 2-2e Impact of Foreign Flows of Funds on Interest Rates, 40 2-2f Summary of Forces That Affect Interest Rates, 41

2-3 Forecasting Interest Rates, 44