A small country is a net foreign borrower and its supply of 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

When the supply of loanable funds increases in a small open economy that is a net foreign borrower, the domestic interest rate does not change because it is determined by the world interest rate. However, the increased supply of loanable funds reduces the need for foreign borrowing, leading to a decrease in foreign borrowing.

A Small Country Is a Net Foreign Borrower and Its