A very small country is a net foreign borrower and its demand for loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________.

Question

Quizplus · Accepted Answer

If a very small country is a net foreign borrower and its demand for loanable funds increases, the equilibrium interest rate in the country will increase. This will result in an increase in the quantity of loanable funds supplied in the country. However, since the country is a net foreign borrower, it will still need to borrow more funds from foreign sources to meet its increased demand for loanable funds. Therefore, the equilibrium quantity of loanable funds used in the country will increase and the country's foreign borrowing will also increase. Thus, option C is the correct answer.

A Very Small Country Is a Net Foreign Borrower and Its