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Loanable funds theory is considered to be an improvement over the classical theory on the following aspects ADVERTISEMENTS 1 Loanable funds theory recognizes the importance of hoarding as a factor affecting the interest rate which the classical theory has completely overlooked 2 Loanable funds theory links together liquidity preference, quantity of money,Definition of Loanable Funds Model The loanable funds model is a model that uses supply and demand to illustrate how an interest rate is determined by the interaction between savers who supply money and investors who borrow money Detailed Explanation Savers or investors supply money to fund economic growthThe Loanable Funds Market In the loanable funds market, the price is the interest rate and the thing being exchanged is money Households act as suppliers of money though saving, and they will supply a large quantity of money (that is, they will save more) as the interest rate increases Www Dentonisd Org Cms Lib Tx Centricity Domain 9