Market interest rates are determined by the demand and supply of loanable funds. Households supply funds in order to consume more in the future;the higher the interest rate,the more they supply. Households and firms both demand funds,but the higher the interest rate,the less they demand.Shifts in demand or supply cause changes in interest rates. Market interest rates are determined by the demand and supply of loanable funds. Households supply funds in order to consume more in the future; the higher the interest rate, the more they supply. Households and firms both demand funds, but the higher the interest rate, the less they demand. Shifts in demand or supply cause changes in interest rates