Abstract
In the general case, machines have a finite life span and are funded, explicitly or implicitly, by a series of equal annual payments for interest and repayment of principal. The demand curve for loanable funds by neoclassical firms and the corresponding supply curve are derived in this paper. It is advantageous to graph both curves against the annual repayment per dollar of loanable funds rather than against the rate of interest alone. Although supply and demand curves are often related to the rate of interest, the area defined by points on such curves has meaning only in special cases.
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