Question

Assume that foreign investors who have invested in U.S. securities decide to decrease their holdings of U.S. securities and to instead increase their holdings of securities in their own countries. This should cause the supply of loanable funds in the United States to ____ and should place ____ pressure on U.S. interest rates.

A, decrease; upward
B, decrease; downward
C, increase; downward
D, increase; upward

Answer 1

Answer: A

Explanation: When the the foreign investors who have invested in U.S. securities decide to decrease their holdings of U.S. securities and to instead increase their holdings of securities in their own countries . This will cause the supply of loanable funds in the United States to decrease and should place upward pressure on U.S. interest rates. A larger money supply lowers market interest rates, making it less expensive for consumers to borrow. Conversely, smaller money supplies tend to raise market interest rates, making it pricier for consumers to take out a loan. More money flowing through the economy corresponds with lower interest rates, while less money available generates higher rates.

Answer 2

A, decrease; upward

Step-by-step explanation:

A rise in the real interest rate increases the quantity of loanable funds supplied. A fall in the real interest rate decreases the quantity of loanable funds supplied. A change in disposable income, expected future income, wealth, or default risk changes the supply of loanable funds.