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?单项选择题

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