Question

In a large open economy, why is the supply of loanable funds upward sloping?

1.A lower interest rate makes borrowing more expensive.
2.A lower real interest rate encourages people to save.
3.A higher real interest rate encourages people to save.
4.A higher real interest rate discourages domestic consumers from buying foreign assets.

Answer 1

The correct answer for the question that is being presented above is this one: "3.A higher real interest rate encourages people to save." The supply of loanable funds slopes upwards in an open economy because there are more funds available. An open economy allows for more money to be put into the economy.