Purpose: This week you are learning about the loanable funds market and how the interaction between savers and borrowers helps to determine interest rates. In this discussion post you are going to apply interest rates to an upcoming personal finance decision.

Post: For this post, please respond to both questions below:

1. Explain how the interaction between suppliers and demanders in the market for loanable funds determines market interest rates.
2. Think of something you plan to purchase with a loan in the next few years, such as a house or a car. Perhaps you are borrowing to finance your education. Estimate the amount of money you will need to finance, and research to determine what terms are reasonable for this type of loan. Determine the impact of a 1% increase in the interest rate (see details below).

As a part of your response to question 2, be sure to respond to the following:

• What purchase are you analyzing?
• How much money will you need to finance to make this purchase?
• What are the typical terms for this type of loan?
• What is the impact of a 1% interest rate increase on the monthly payment?
• What is the impact of a 1% interest rate increase on the amount of interest you will pay over the life of the loan?
• What are some things you can do to qualify for the lowest rate possible on this loan?