A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Question

BlackTom AI · Accepted Answer

National saving equals the supply of loanable funds in an open economy because saving provides funds that finance domestic investment or flow abroad as net capital outflow.

Relevant concepts:
- National saving (S) = Y − C − G; it is the total funds available for investment and capital flows.
- In an open economy the identity is S = I + NCO, where I is domestic investment and NCO is net capital outflow (capital flowing to foreign countries minus foreign capital flowing in).
- The supply of loanable funds in the loanable funds market is equal to national saving (S), since savers supply funds that either finance I or NCO.

Step-by-step reasoning and calculations:
1. Use the open-economy saving identity: S = I + NCO.
2. Plug in the given values: I = $10 billion, NCO = $40 billion.
3. Compute S = 10 + 40 = $50 billion.
4. The problem already states national saving is $50 billion, which matches the computed value, so the data are consistent.
5. Therefore the supply of loanable funds = national saving = $50 billion.

Why the correct answer is correct:
- By definition in the loanable funds framework for an open economy, the supply curve of loanable funds is national saving. The computed sum of domestic investment and net capital outflow equals the given national saving, confirming S = $50 billion is the supply.

Why other plausible answers would be incorrect:
- Saying the supply is net capital outflow ($40 billion) is wrong because NCO is only the portion of saving that flows abroad, not total supply.
- Saying it is domestic investment ($10 billion) is wrong because investment is the use of funds, not the total supply.
- Any attempt to compute supply as S − G or similar is incorrect because G is already accounted for in the national saving figure; without tax data you cannot recompute S from G alone.

Final confirmation: The supply of loanable funds is $50 billion, matching the provided answer.

A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?Single choice

Similar Questions

An increased government budget deficit causes the loanable funds to shift to the _.

Figure 26-4 This figure shows the loanable funds market for a closed economy. Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to

Figure The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves Refer to the Figure. Which of the following movements shows the effects of households' decision to save more?

Is the following statement true or false? In the products of methylation-hydrolysis, every -OH group corresponds to the position of a glycosidic bond in the starting polysaccharide.

Which of the follwoing structures represents amylopectin?

Which of the following is true about an aldopentose?I. It is a monosaccharide.II. It contains a CHO groupIII. It is a disaccharide.IV. It is an oligosaccharide.

For stock A, we have 𝛽 𝑖 = 0.70. Suppose the expected market risk premium next year is 9% and the risk-free rate is 3%. What is the expected return of this stock based on the CAPM? (Please answer in % and round to 2 decimal places. If the answer is 8.057%, then in the box, write 8.06)

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler