Public sector savings refers to the government, including federal, state and local. Alternatively, governments that run budget deficits have negative savings and reduce the overall supply of savings available to the loanable funds market. Net foreign savings is the difference between money coming into a country's capital or loanable funds market from foreign savers minus the money that leaves the country as domestic savers are saving in foreign capital markets. Equilibrium in the Capital Market Click on a part of the graph for further information. The demand for loanable funds is generated by businesses that wish to borrow money to undertake investment in capital.
Investment is undertaken by firms to add to their capital stock.
Capital is considered to be the machinery, tools, buildings, computers, and other equipment used in the production of goods and services. The capital market is where firms and other institutions borrow money. The labor market looks at the decisions of individuals to work and the demand by employers for workers. The household labor supply decision will have a positive correlation to the wage rate. The demand for labor by businesses, governments, and other employers will have a negative relationship to the wage rate.