Therefore, it is the rate of interest which clears the market. Funds are supplied by households, businesses, governments, foreigners, banks, and the central bank. Funds are demanded by households, businesses, governments, and foreigners. Sources of Funds Households are the biggest source of loanable funds. They supply loanable funds out of discretionary income.
Households tend to be risk averse.
To get them to supply additional funds, they must expect higher rates of return. Therefore, the supply of loanable funds by households is upward sloping and very responsive with respect to interest rates. Businesses are not big sources of loanable funds. They tend to supply funds only for cash management purposes on a short-term basis. Therefore, the supply of loanable funds by businesses tends to be fixed and unresponsive to interest rate changes.