Interest

Rate (%)

Quantity of Financial Capital Demanded

Quantity of Financial Capital Supplied

(Borrowing) ($ billions)

(Lending) ($ billions)

11

13

15

17

19

21

$800

$700

$600

$550

$500

$480

$420

$510

$600

$660

$720

$750

TABLE 4.5 Demand and Supply for Borrowing Money with Credit Cards

The laws of demand and supply continue to apply in the financial markets. According to the law of demand, a
higher rate of return (that is, a higher price) will decrease the quantity demanded. As the interest rate rises,

consumers will reduce the quantity that they borrow. According to the law of supply, a higher price increases

the quantity supplied. Consequently, as the interest rate paid on credit card borrowing rises, more firms will be

eager to issue credit cards and to encourage customers to use them. Conversely, if the interest rate on credit

cards falls, the quantity of financial capital supplied in the credit card market will decrease and the quantity
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