Assume that foreign investors who have invested in U.S. securities decide to decrease their holdings of U.S. securities and to instead increase their holdings of securities in their own countries. This should cause the supply of loanable funds in the United States to______ and should place ____ pressure on U.S. interest rates.
A) decrease; upward
B) decrease; downward
C) increase; downward
D) increase; upward

Question

Quizplus · Accepted Answer

When foreign investors decrease their holdings of U.S. securities and increase their holdings of securities in their own countries, the supply of loanable funds in the United States decreases as there are fewer funds available for lending in the U.S. This reduced supply of loanable funds places upward pressure on U.S. interest rates, as borrowers must now offer higher interest rates to attract the remaining available funds.

Assume That Foreign Investors Who Have Invested in U