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

3. 
Demand for Hoarding: 
Demand for hoarding money arises becuse 
of people
's 
preferece for cash balances or liquidity. This is the asset 
demand for money or funds. People can lend their savings to 
others; they can invest their savings in real estate or purchase 
shares and stocks. However, they may also keep their savings in 
idle cash balances. One reason why people prefer to hold idle cash 
balances is to take advantage of future changes in security prices. 
Keynes calls it the speculative motive. Other things remaining the 
same, at higher rates of interest, inducement to hoard is less 
because people will like to lend their savings to take advantage of 
the high interest rate. It follows that at lower 
rates 
of interest, 
iducement to hoard is more since the loss by way of interest is 
small. Therefore, the curve of demand for hoarding money also 
slopes downwrds from left to right as shown by curve H in Fig. 4.10 
4. 
Governments: 
Central, state, and local governments are major 
borrowers. Although some ot this borrowing is for defence, 
governments 
mostly 
borrow 
for 
development 
purposes. 
Government demand for funds may partly be included in the 
investment demand and partly in the consumption demand. That is 
why no separate curve representing government demand for 
loanable funds is shown in Fig. 4.10 
The horizontal summation of the investment demand curve 
(II), the consumption demand curve (CD), and the hoarding curve 
(H) gives us the total demand curve for loanable funds, DL. 
 
4.8.2 Supply of Loanable Funds: 
 
Loanable funds come form four sources : 
1. Savings: 
Savings made by households and firms out of their 
incomes are the major source of loanable funds. Savings, however 
have been interpreted in two different senses. The Swedish 
economists like Wicksell and Myrdal considered savings in the ex-
ante sense ; ex-ante means planned, intended or anticipated. 
Saving in the exante sense therefore means planned saving out of 
expected income. Robertson considers savings as the difference 
between past income and present consumption, that is, saving S = 
Y
t-1
- C
t
. It means that saving is the difference between income in 
the period t
—1 and consumption in period t. In both these 
versions, savings are regarded as interest elastic. A higher rate of 
interest is J expected to increase savings although they agreed that 
savings of households depend on; income. Thus, the relationship 

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between the rate of interest and savings is the same as in the 
classical theory
—the saving curve is positively sloped— it is rising 
upwards from left to right. It is labelled S in Fig. 4.10