Question 1

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?
A) $50 billion
B) $70 billion
C) $90 billion
D) $120 billion

Accepted Answer

The supply of loanable funds is equal to private saving plus public saving. 
Private saving + Public saving = $100 billion + (-$30 billion) = $70 billion. Therefore, the best choice is B.

Question 2

In the open-economy macroeconomic model, the supply of loanable funds equals
A) national saving. The demand for loanable funds comes from domestic investment + net capital outflow.
B) national saving. The demand for loanable funds comes only from domestic investment.
C) private saving. The demand for loanable funds comes from domestic investment + net capital outflow.
D) private saving. The demand for loanable funds comes only from domestic investment.

Accepted Answer

In the open-economy macroeconomic model, the supply of loanable funds comes from national saving (both private and public). The demand for loanable funds comes from domestic investment and net capital outflow (the difference between domestic residents' purchases of foreign assets and foreign residents' purchases of domestic assets). Therefore, the correct answer is A) national saving. The demand for loanable funds comes from domestic investment + net capital outflow.

Question 3

A country has national saving of $100 billion, government expenditures of $30 billion, domestic investment of $80 billion, and net capital outflow of $20 billion. What is its demand for loanable funds?
A) $60 billion
B) $70 billion
C) $100 billion
D) $120 billion

Accepted Answer

The answer of A country has national saving of $100...

Question 4

A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?
A) $20 billion
B) $30 billion
C) $50 billion
D) $60 billion

Accepted Answer

The supply of loanable funds is equal to national saving plus net capital outflow, which is:
$50 billion + (-$40 billion) = $10 billion
Therefore, the correct answer is C) $50 billion.

Question 5

In an open economy, the demand for loanable funds comes from
A) only those who want to buy domestic capital goods.
B) only those who want to buy foreign assets.
C) those who want to buy either domestic capital goods or foreign assets.
D) None of the above is correct.

Accepted Answer

In an open economy, both domestic and foreign actors can demand loanable funds. The demand for loanable funds can come from those who want to invest in domestic capital goods or those who want to buy foreign assets. Therefore, choice C is the correct answer.

Question 6

In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds
A) only if the asset is located at home.
B) only if the asset is located abroad.
C) whether the asset is located at home or abroad.
D) None of the above is correct.

Accepted Answer

In the open-economy model, capital can flow across borders. Therefore, the purchase of a capital asset by domestic residents can either occur domestically or abroad. Regardless of where it is located, it adds to the demand for loanable funds.

Question 7

A country has output of $600 billion, consumption of $350 billion, government expenditures of $90 billion and investment of $60 billion. What is its supply of loanable funds?
A) $160 billion
B) $150 billion
C) $60 billion
D) $30 billion

Accepted Answer

The answer of A country has output of $600 billion,...

Question 8

Other things the same, a decrease in the real interest rate
A) decreases the quantity of loanable funds demanded.
B) increases the quantity of loanable funds demand
C) shifts the demand for loanable funds to the right.
D) shifts the demand for loanable funds to the left.

Accepted Answer

The answer of Other things the same, a decrease in...

Question 9

The explanation for the slope of
A) the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving.
B) the demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving.
C) the supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving.
D) the demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving.

Accepted Answer

According to the theory of supply of loanable funds, a higher real interest rate increases the opportunity cost of current consumption and incentivizes individuals to save more in order to obtain future benefits. Therefore, as the real interest rate increases, the supply of loanable funds (savings) increases as well, causing the supply curve to slope upwards.

Question 10

In an open economy, the source for the demand for loanable funds is
A) national saving.
B) national saving + net capital outflow.
C) investment
D) investment + net capital outflow

Accepted Answer

The answer of In an open economy, the source for...

Question 11

If a country has a negative net capital outflow, then
A) on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.
B) on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds.
C) on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds.
D) on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

Accepted Answer

The answer of If a country has a negative net...

Question 12

The slope of the supply of loanable funds is based on an increase in
A) only national saving when the interest rate rises.
B) both national saving and net capital outflow when the interest rate rises.
C) only national saving when the interest rate falls.
D) both national saving and net capital outflow when the interest rate falls.

Accepted Answer

The answer of The slope of the supply of loanable...

Question 13

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouses) is included in the demand for loanable funds in the U.S.?
A) both the one in Ohio and the one in Italy
B) only the one in Ohio
C) only the one in Italy
D) neither the one in Ohio nor the one in Italy

Accepted Answer

Both warehouses are owned by the U.S. grocery chain, so the borrowing for both warehouses would be included in the demand for loanable funds in the U.S.

Question 14

In an open economy, the source of the demand for loanable funds is
A) national saving
B) national saving + net capital outflow
C) investment + the government budget deficit
D) investment + net capital outflow

Accepted Answer

In an open economy, the source of demand for loanable funds is investment and net capital outflow. Investment is the sum of private and public spending on capital goods like factories, machines, and buildings. Net capital outflow is the difference between the purchases of foreign assets by domestic residents and the purchases of domestic assets by foreign residents. Together, they determine the total demand for loanable funds. National saving (A) and national saving plus net capital outflow (B) are the sources of the supply of loanable funds, not demand. Government budget deficit (C) is a component of the demand for loanable funds, but it is not the only source.

Question 15

If a country has a positive net capital outflow, then
A) on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.
B) on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds.
C) on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds.
D) on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

Accepted Answer

When a country has a positive net capital outflow, it means that on net, it is investing more in foreign assets than foreigners are investing in domestic assets. This increases the country's demand for loanable funds to finance these purchases abroad.

Question 16

U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and a factory in Mexico. Borrowing for factories in which locations) is included in the U.S. demand for loanable funds?
A) only the U.S.
B) only Mexico
C) Mexico and the U.S.
D) neither Mexico nor the U.S.

Accepted Answer

Since Wright Air Conditions is a U.S. corporation, the borrowing funds for the factory in the U.S. will clearly be included in the U.S. demand for loanable funds. As for the factory in Mexico, it depends on whether the borrowing is done in the U.S. or in Mexico. If the borrowing is done in the U.S., it will still be included in the U.S. demand for loanable funds. If the borrowing is done in Mexico, then it will be included in the demand for loanable funds in Mexico. Therefore, the correct answer is C, Mexico and the U.S.

Question 17

In the open-economy macroeconomic model, the supply of loanable funds comes from
A) national saving. Demand comes from only domestic investment.
B) national saving. Demand comes from domestic investment and net capital outflow.
C) Only net capital outflow. Demand for loanable funds comes from national saving.
D) domestic investment and net capital outflow. Demand for loanable funds comes from national saving.

Accepted Answer

In the open-economy macroeconomic model, the supply of loanable funds comes from national saving. However, the demand for loanable funds comes from both domestic investment and net capital outflow (the amount of capital outflow minus the amount of capital inflow from foreign countries). Therefore, choice B, national saving as the source of loanable funds and demand coming from both domestic investment and net capital outflow, is the correct choice.

Question 18

A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $50 billion, and net capital outflow of $30 billion. What is its supply of loanable funds?
A) $30 billion
B) $40 billion
C) $50 billion
D) $80 billion

Accepted Answer

The supply of loanable funds is equal to national savings plus net capital outflow. Therefore, the supply of loanable funds is $80 billion + (-$30 billion) = $50 billion. The correct answer is (C).

Question 19

A country has output of $900 billion, consumption of $600 billion, government expenditures of $150 billion and investment of $120 billion. What is its supply of loanable funds?
A) $30 billion
B) $90 billion
C) $120 billion
D) $150 billion

Accepted Answer

The answer of A country has output of $900 billion,...

Question 20

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?
A) $40 billion
B) $60 billion
C) $90 billion
D) $130 billion

Accepted Answer

The answer of A country has national saving of $90...

Quiz 14: A Macroeconomic Theory of the Open Economy

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

In the open-economy macroeconomic model, the supply of loanable funds equals

A country has national saving of $100 billion, government expenditures of $30 billion, domestic investment of $80 billion, and net capital outflow of $20 billion. What is its demand for loanable funds?

A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

In an open economy, the demand for loanable funds comes from

In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds

A country has output of $600 billion, consumption of $350 billion, government expenditures of $90 billion and investment of $60 billion. What is its supply of loanable funds?

Other things the same, a decrease in the real interest rate

The explanation for the slope of

In an open economy, the source for the demand for loanable funds is

If a country has a negative net capital outflow, then

The slope of the supply of loanable funds is based on an increase in

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouses) is included in the demand for loanable funds in the U.S.?

In an open economy, the source of the demand for loanable funds is

If a country has a positive net capital outflow, then

U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and a factory in Mexico. Borrowing for factories in which locations) is included in the U.S. demand for loanable funds?

In the open-economy macroeconomic model, the supply of loanable funds comes from

A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $50 billion, and net capital outflow of $30 billion. What is its supply of loanable funds?

A country has output of $900 billion, consumption of $600 billion, government expenditures of $150 billion and investment of $120 billion. What is its supply of loanable funds?

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?