A small country is a net foreign lender 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 lending ________.

Question

Quizplus · Accepted Answer

In a small open economy, an increase in the supply of loanable funds does not change the domestic equilibrium quantity of loanable funds used because the interest rate is determined by the world market. However, the country's foreign lending increases as the excess supply of loanable funds is lent abroad.

A Small Country Is a Net Foreign Lender and Its