A Backward Bending Supply of Loanable Funds: An Examination of the Interest Rate Elasticity of Saving

Citation data:

Undergraduate Economic Review, Vol: 11, Issue: 1, Page: 2

Publication Year:
2014
Usage 1056
Downloads 769
Abstract Views 287
Repository URL:
https://digitalcommons.iwu.edu/uer/vol11/iss1/2
Author(s):
Doehr, Rachel M, Ms.
Tags:
loanable funds market; interest rate elasticity of saving; target saving; saving rate; backward bending supply curve; Behavioral Economics; Finance; Macroeconomics
article description
The market for loanable funds is presented as either a market with an upward sloping supply curve, or as one with a perfectly inelastic supply. This paper relates the supply of loanable funds to the supply curve in the labor market: backward bending. Once interest rates are high enough, people start to save less, creating the "backward bend.” This explains the discrepancies in previous literature that attempted to put a single value on the interest rate elasticity saving. The reason for the variation in values could be because the elasticity actually depends on the point on the curve.