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

Question

Quizplus · Accepted Answer

In an open economy, the source of the demand for loanable funds is a combination of investment and net capital outflow. Investment refers to the amount that firms spend on capital goods or other business expenditures, which requires borrowing funds. Net capital outflow represents the difference between the amount of domestic savings that are invested abroad and the amount of foreign savings that are invested in the domestic economy. Both of these factors contribute to the demand for loanable funds in an open economy, making choice D the correct answer. Option A is incorrect because it only considers domestic savings, which is not enough to fully explain the demand for loanable funds in an open economy. Option B includes both domestic savings and net capital outflow, but it overstates the source of demand by including national savings twice. Option C is incorrect because while investment and government budget deficits both require funds, the latter is not a source of demand for loanable funds, but rather a source of supply.

In an Open Economy,the Source of the Demand for Loanable