In an open economy, where does the demand for loanable funds come from?
A)only from those who want to borrow funds to buy domestic capital goods
B)only from those who want to borrow funds to buy foreign assets
C)from those who want to borrow funds to buy either domestic capital goods or foreign assets
D)from those who want to borrow funds to buy Canadian bonds or stock in Canadian companies

Question

Quizplus · Accepted Answer

In an open economy, the demand for loanable funds comes from both those who want to borrow funds to buy domestic capital goods and those who want to borrow funds to buy foreign assets. This is because an open economy is engaged in international trade and financial transactions, which requires borrowing to finance domestic investment as well as to buy foreign assets like stocks, bonds, and real estate. Option A and B are not correct as they only explain part of the demand for loanable funds in an open economy. Option D is incorrect as it only specifies buying Canadian bonds or stocks, while in an open economy, the demand for loanable funds could come from buying foreign assets, not just Canadian assets.

In an Open Economy, Where Does the Demand for Loanable