2.
Dishoarding:
Savings are supplemented by dishoarding.
Dishoarding means to bring^ out hoarded money into use. The
people may resort to dishoarding of idle cash balances which they
might have held in the past. It happens when the desire for liquidity
declines^ Dishoarding, therfore, adds to the supply of loanable
funds. At a lower rate of interest, there is not enough of inducement
to lend and, therefore, hoarding is encouraged. But as the rate of
interest rises, people are encouraged to dishoard their idle cash
balances. People may use, their cash balances themselves or may
lend them to others. The schedule or curve dishoarding is positively
sloped and is labelled DH in Fig. 4.10
The rate of interest is determined at the point of intersection
of the two curves
—the supply of loanable funds curve (SL) and the
demand for loanable funds curve, DL. Fig. 4.10 shows that the
equilibrium rate of interest is EM ; at this rate, the demand for
loanable funds is equal to the supply of loanable funds i.e. OM.
It may be noted that at the equilibrium rate of interest where
aggregate demand for and supply of loanable funds are equal,
planned savings and planned investment may not be equal.
In Fig. 4.10, at O r rate of interest, savings are equal to rA and
planned investment equal to rB. Planned investment exceeds
planned saving. Therefore, or can not be a stable rate of interest
because income will increase to shift the supply schedule of paving
SL and hence of loanable funds to the right. This will change the
rate of interest.
3.
Bank Money:
The banking system of a country is another source
of the supply of loanable funds. The banks are factories of credit ;
thy credit ; credit by giving loans to bussinesssmen and
industrialists or by the purchase and sale of securities. By credit
banks put new money in circulation and so increase the supply of
loanable funds. It is natural that at higher rate of interest, banks
lend more and less at lower rates. The supply curve of bank money
also has a positive slope. The curve labelled BM in Fig.4.10
indicates credit creation by banks.
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