Question

13. A country has domestic investment of $200 billion, national saving of $300 billion, and purchased $300 billion of foreign assets. How many of its assets did foreigners purchase?

A. $100 billion

B. $200 billion

C. $300 billion

D. $400 billion

E. $500 billion

11. Which of the following statements is (are) correct?

(x) If interest rates rise in the U.S., then other things the same, foreigners would buy more U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.

(y) U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in both locations is included in the U.S. demand for loanable funds.

(z) Other things the same, if the interest rate falls, then firms will want to borrow more which increases the quantity of loanable funds demanded.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (x) only

Answer 1

13> The total cash flow must be zero. Thus, the sum of domestic investment and foreign asset purchase should be equat to national savings and foreigner purchase asset

Thus, the answer will be $(200+300-300)=$200

B is correct.

11> A. (x), (y) and (z)

If the interest rates go up, the bond becomes cheaper and people do not like to borrow because of higher interest rate.

If a company in the US borrows money to make factories at 2 different location, it can borrow from the US.

If interest rate falls, that gives firms the incentive to borrow more.