Another Look: Financial Markets

• We can also take a closer look at financial markets. Remember that interest rates are the “price” paid by a borrower for the use of money for a year.

• These markets are competitive and prices (interest rates) adjust to bring the supply of loanable money into equilibrium with the demand for loans.

• Strictly speaking, any of the four agents could be either a borrower (buyer) or a lender (seller) in this market. Typically in recent decades, though, firms and the government are net borrowers, meaning they get money from the markets, while consumers are usually net savers. Exceptions have occurred, though. In 2005, consumers in the US were net borrowers (US Savings was negative). Foreigners could be borrowers or lenders at any time.