Teaching the Principles of Interest Rate Determination

We present a loanable funds framework that provides students with a quick and clear under­standing of interest rate determination. Within the presented loanable funds framework we can (i) clarify the role of information for the emergence of liquidity effects of money, (ii) clarify long-term monetary neutrality and deviations thereof, and (iii) see behind demand and supply to describe the behavior of key and representative agents. This approach makes it easy to understand how some agent's (like the central bank or the treasury department) change of behavior influences the market and how this in turn affects individual players (e.g. an enterprise)