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Loanable Funds Market Assumptions Households save but never borrow Firms and corporations borrow but never save Governments can save (in a budget surplus) and/or borrow (in a budget deficit), or be neutral ( in the case of a balanced budget) In a closed economy, firms and the government must borrowOk In this one I draw and explain the graph for loanable funds and crowding out To watch the loanable funds practice video please go to the Ultimate ReviewUpdate Once again I have updated this post with a few minor changes Notably, I have added to graphs illustrating a separate shift in supply and demand for loanable funds Based on discussions with readers via email, it appears that my previous graph illustrating in one diagram 1 Loanable funds market graph shifters