A small country is an international borrower and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international borrowing ________.

Question

Quizplus · Accepted Answer

When a small country's domestic supply of loanable funds increases, it relies less on international borrowing because it can fund more investments domestically. The equilibrium quantity of loanable funds used in the country does not change because it is determined by the world interest rate, which is unaffected by changes in a small country's loanable funds supply.

A Small Country Is an International Borrower and Its Domestic