Question 1

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?

Accepted Answer

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

Question 2

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?

Accepted Answer

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

Question 3

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

Accepted Answer

A decrease in the real interest rate makes borrowing cheaper, which encourages individuals and firms to borrow more money, leading to an increase in the demand for loanable funds.

Question 4

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 location(s) is included in the U.S. demand for loanable funds?

Accepted Answer

Wright Air Conditions is borrowing funds for two factories, one in the U.S. and the other in Mexico. Therefore, both locations contribute to the U.S. demand for loanable funds.

Question 5

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?

Accepted Answer

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

Question 6

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

Accepted Answer

In an open-economy macroeconomic model, a purchase of a capital asset by domestic residents can increase the demand for loanable funds. This is true regardless of whether the asset is located domestically or abroad. When domestic residents purchase a foreign asset, they must convert their currency into the foreign currency to make the purchase, which increases the demand for loanable funds. Conversely, if they purchase a domestic asset, it still adds to the demand for loanable funds because they are using up resources that could have been used for other investments or consumption. Therefore, choice C is correct.

Question 7

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

Accepted Answer

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow. Domestic investment represents the financial needs of domestic firms and households to invest in new projects or expand existing ones, while net capital outflow represents the financial needs of domestic investors to invest in foreign assets. Therefore, the correct answer is D, investment + net capital outflow. National saving and the government budget deficit are sources of funds available for lending, rather than the demand for loanable funds.

Question 8

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

Accepted Answer

In the open-economy macroeconomic model, the supply of loanable funds comes from national saving. However, demand comes from both domestic investment and net capital outflow. Domestic investment is the spending on capital goods by firms based in the country, while net capital outflow is the difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreigners. Both of these factors contribute to the demand for loanable funds, and therefore, option B is the correct answer.

Question 9

If a country has a positive net capital outflow, then

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 10

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?

Accepted Answer

The supply of loanable funds is equal to national savings plus net capital outflow. Therefore, supply of loanable funds = $50 billion + (-$40 billion) = $10 billion.

Question 11

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

Accepted Answer

According to the open-economy macroeconomic model, the supply of loanable funds comes from national saving, which includes both private and public saving. The demand for loanable funds comes from both domestic investment and net capital outflow, which is the difference between domestic investment and foreign investment in the country. Therefore, option A is the correct choice.

Question 12

The explanation for the slope of

Accepted Answer

The slope of the supply of loanable funds curve is positive because as the real interest rate increases, the opportunity cost of spending money on consumption today rather than saving and earning interest in the future becomes higher, incentivizing individuals to save more. This leads to an increase in the supply of loanable funds and a rightward shift of the supply curve. Conversely, a decrease in the real interest rate makes saving less attractive and reduces the supply of loanable funds, causing a leftward shift of the curve. Therefore, the slope of the supply of loanable funds curve is positive.

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

In an open economy, the demand for loanable funds comes from those who want to buy either domestic capital goods or foreign assets. This is because individuals and firms can choose to invest their savings domestically or abroad, so the demand for loanable funds is not limited to just one type of investment.

Question 15

If a country has a negative net capital outflow, then

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

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?

Accepted Answer

The supply of loanable funds is equal to private saving plus public saving. In this case, private saving is $100 billion and public saving is -$30 billion (which means the government is running a budget deficit). Therefore, the total saving is $100 billion - $30 billion = $70 billion. This is the amount available for domestic investment (which is $50 billion) and for net capital outflow (which is -$20 billion, meaning there is a net outflow of funds from the country). So, the supply of loanable funds is $70 billion.

Question 18

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?

Accepted Answer

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

Question 19

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

Accepted Answer

Since the U.S. grocery chain is borrowing the money from the U.S. financial market to purchase both warehouses, the demand for loanable funds in the U.S. is affected by both purchases. Therefore, both the warehouse in Ohio and the one in Italy are included in the demand for loanable funds in the U.S.

Question 20

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?

Accepted Answer

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

Quiz 32: A Macroeconomic Theory of the Open Economy