Why does the supply of saving slope upward? Why does the investment demand slope downward? Identify the equilibrium in the market.
If this is the standard curve, savers will save more when the rate of return, i.e. interest paid, is greater. Likewise, investors borrow less capital when the rate charged increases. The supply and demand of capital is tied directly to interest rates.
The supply of saving slopes upward because savers are more willing to save at higher interest rates. This is because higher interest rates result in greater returns on savings, incentivizing individuals and businesses to save more. To understand why the supply of saving slopes upward, you need to analyze the behavior of savers and their preferences for saving at different interest rates.
On the other hand, the investment demand slopes downward because businesses and individuals are more willing to invest in projects when the cost of borrowing, i.e., interest rates, is lower. Lower interest rates reduce the cost of borrowing and make it more affordable for businesses to invest in projects. The investment demand curve illustrates how the quantity of investment demanded changes as interest rates change.
The equilibrium in the market is the point where the supply of saving equals the demand for investment. This is where the quantity of saving supplied matches the quantity of investment demanded. At this equilibrium point, the interest rate is determined where the quantity of saving supplied matches the quantity of investment demanded. Understanding the equilibrium of the market involves analyzing the interaction between the supply and demand for saving and investment and finding the point where they intersect.