Loanable Funds & Crowding Out (fast / JS version)

The market for loanable funds

Think of all saving and borrowing in the economy as one market for a single good — loanable funds — whose “price” is the real interest rate \(r\).

• Demand = investment \(I(r)\). Firms borrow to build capital; they borrow less when \(r\) is high, so demand slopes down.
• Supply = national saving \(S\) = private \((Y-T-C)\) + public \((T-G)\) = \(Y - C - G\).
• Equilibrium: \(r\) adjusts until saving equals investment, \(S = I(r)\).
• Crowding out: a bigger deficit (raise \(G\), or cut \(T\)) lowers national saving → \(r\) rises → investment is squeezed.

This version uses plain JavaScript — no R download, so it loads instantly. Same model, same sliders as the webR version.

Government purchases G: 1500 Taxes T: 1500 Investment-demand shift: 0

Saving slopes up (consumption responds to r) — uncheck for vertical saving

What to notice

• Run a deficit — raise \(G\) above \(T\). The saving line slides left, \(r\) climbs, and investment falls: crowding out, live.
• Shift investment demand (baseline, saving slopes up): \(r\) rises and investment rises.
• Uncheck the box for vertical saving and shift demand again: \(r\) rises but \(I^*\) stays put. This is the difference between the two exam cases.