Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

4. Disinvestment: 
Disinvestment is the opposite of investment. All 
firms provide for depreciation of capital assets and they set apart 
funds for this purpose. At high rates of interest, the firms may be 
encouraged to use the depreciation fund for advancing loans. This 
increase the supply of loanable funds in the market. It is also 
possible that the firms are not making sufficient profits and they 
may sell off the business. This is also disinvestment and it increase 
the supply of loanable funds. At higher rates of interest, there is 
more disinvestment because the capital invested in business may 
not yield as much as the current rate of interest on loanable funds. 

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The positively sloped curve DI in Fig. 4.10 represents the schedule 
of dishoarding. 
All the curves representing the supply of loanable funds are 
positively sloped : they are interest elastic. The lateral summation 
of these curves yields the aggregate supply curve of loanable 
funds. This aggregate supply curve is also, naturally, positively 
sloped and is shown as SL in Fig. 4.10. 
Figure 4.10 
In this connection Wicksell has drawn a distinction between 
the market and natural rate of interest. Market rate of interest 
established equality between the demand for and supply of 
loanable funds. Natural rate of interest is that which not only brings 
demand for and the supply of loanable funds into equality but also 
establishes equality between saving and; investment. Or is the 
market rate of interest but it is not stable since saving and 
investment! are not equal. Since investment is more than saving, 
income continues to increase till savings out of this increased 
income are large enough to be equal to investment. Thus the 
market rate of interest has a tendency to move to the natural rate of 
interest through changes in income! over time. It is through such 
period analysis that the loanable fund theory brings income 
changes into the discussion of the rate of interest. 
While discussing the components of the demand and supply 
of loanable funds, we have taken savings on the supply side and 
dis- savings on the demand side; investment on the demand side 
and disinvestment on the supply side; hoarding on the demand side 
and dishoarding on the supply side. The analysis will be greatly 
simplified if we use net of saving (saving-dissaving), net of 
investment (investment-disinvestment), net of hoarding (hoarding-
dishoarding) we know that in equilibrium. 

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supply of loanable funds=demand for loanable funds or S+DH+ 
BM+ DI=I+CD+H 
By taking CD to the left hand side and DH and DI to the right hand, 
we get the net values of magnitudes. 
The equation is now reduced to (S
—CD)+BM=(I—DI)+(H—DH) or 
net saving+ Bank money=Net investment + net hoarding.