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

Authors

Rachel M. Doehr Ms., Claremont McKenna CollegeFollow

Abstract

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.

Recommended Citation

Doehr, Rachel M. Ms. (2015) "A Backward Bending Supply of Loanable Funds: An Examination of the Interest Rate Elasticity of Saving," Undergraduate Economic Review: Vol. 11: Iss. 1, Article 2.
Available at: https://digitalcommons.iwu.edu/uer/vol11/iss1/2