1. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. CHAPTER 7 Interest Rates and Bond Prices

2. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Compounding: The Future Value of Money Lent Today Payment Today $1,000 Future Value 1,060

3. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Discounting: The Present Value of Money to Be Received in the Future Value Today $1,000 Future Payment 1,060

4. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. The Supply of and Demand for Funds Interest Rate (Percent) Loanable Funds (in Billions) Demand $500 E1E1 Supply 6

5. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. A Shift in the Demand for Funds Interest Rate (Percent) Loanable Funds (in Billions) DD $500 E1E1 SS 6 $600 8 D'D'D'D' E2E2

6. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. A Shift in the Supply of Funds Interest Rate (Percent) Loanable Funds (in Billions) DD $500 E1E1 SS 6 4E2E2 S'S'S'S' $550

7. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Inflation and Interest Rates: A Graphical Treatment Interest Rate (Percent) Loanable Funds (in Billions) DD $500 E1E1 SS 6 E2E2 S’S’ 10 D'D'D'D'