For a given set of foreign interest rates, the quantity of U.S. loanable funds demanded by foreign governments or firms will be ____ U.S. interest rates.
A) positively related to
B) inversely related to
C) unrelated to
D) none of the above

Question

Quizplus · Accepted Answer

When foreign interest rates are high, foreign firms and governments can obtain funds at a lower cost in their own countries, leading to a decrease in their demand for loanable funds in the US. On the other hand, when foreign interest rates are low, foreign firms and governments are more likely to borrow from the US, leading to an increase in their demand for US loanable funds. Therefore, there is an inverse relationship between the quantity of US loanable funds demanded by foreign entities and foreign interest rates.

For a Given Set of Foreign Interest Rates, the Quantity