The central bank can increase or decrease the reserves of the banks and thereby influence the banks' supply of loanable funds to the market. The central bank's intervention shifts the supply of loanable funds. Uses of Funds Households are big users of funds. They finance everything from houses to weekly groceries. Since loans and credit card arrangements can be structured in many different ways to minimize the monthly payment, the demand for loanable funds by households is downward sloping, but not very sensitive to interest rate changes.
Businesses are the biggest users of loanable funds.
Interest is a major expense for businesses, because they finance fixed capital as well as inventory. In both cases, the interest rate plays a major role in whether or not businesses undertake the expenditure. Therefore, the demand for loanable funds by businesses is downward sloping and very sensitive to interest rate changes. Governments are also big users of loanable funds, but the federal government is a bigger user than are the state and local governments. Government spending depends primarily upon social needs, and since governments can raise taxes to pay off their loans, government spending is not sensitive to changes in the interest rates.