A very small country is an international 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

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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 Very Small Country Is an International Lender and Its