A small country is a net foreign borrower and its demand for loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country and the countryʹs foreign borrowing .
A) does not change; does not change
B) increases; does not change
C) increases; increases
D) does not change; increases

Question

Quizplus · Accepted Answer

When a small country is a net foreign borrower and its demand for loanable funds increases, it causes an increase in the equilibrium quantity of loanable funds used in the country as there is more demand for borrowing. This increase in demand for loanable funds also leads to an increase in the country's foreign borrowing as it needs to borrow more to meet its increased demand. Therefore, both the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing increase.

A Small Country Is a Net Foreign Borrower and Its