In the open-economy macroeconomic model,the purchase of a capital asset adds to the demand for loanable funds
A) only if the asset is located at home.
B) only if the asset is located abroad.
C) whether the asset is located at home or abroad.
D) None of the above is correct.

Question

Quizplus · Accepted Answer

The purchase of a capital asset in the open-economy macroeconomic model will add to the demand for loanable funds, whether the asset is located at home or abroad. This is because acquiring a capital asset requires financing, which creates a demand for borrowing. Since the economy is open, there is the possibility of borrowing from abroad, which increases the demand for loanable funds in the domestic economy.

In the Open-Economy Macroeconomic Model,the Purchase of a Capital Asset