In
economics, market clearing refers to either a simplifying assumption made by the
new classical school that
markets always go to where the quantity supplied equals the quantity demanded; or the process of getting there via price adjustment. The core idea is that the market will eventually be cleared of all surpluses and shortages (excess supply and demand). The first version assumes that this process occurs instantaneously.
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Total demand for
loans by
borrowers equals total supply of loans from
lenders. The market, any market, clears at the equilibrium rate of interest or price.
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