Master Machines, Inc. 2017 2018 Sales $1,240 $1,385 COGS 820 910 Interest 25 20 Dividends 25.50 25.90 Denreciation 270 240

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.