Question

Select the true statement or statements regarding the loanable funds market. Foreign entities cannot save in the United States. Savings refers to savings accounts held in banks only. The purchase of stocks and bonds is considered savings. Savings from households are used by firms and governments to finance investment.

Answer 1

The purchase of stocks and bonds is considered savings and savings from households are used by firms and governments for investment. Foreign entities can save in the U.S., and savings are not limited to bank accounts but include various financial instruments and assets.

Step-by-step explanation:

The true statements regarding the loanable funds market are that the purchase of stocks and bonds is considered savings, and savings from households are used by firms and governments to finance investment. It is not true that foreign entities cannot save in the United States or that savings refers only to savings accounts held in banks. The supply of financial capital in the U.S. economy comes from savings by individuals and firms, and the inflow of financial capital from foreign investors, which is related to the trade deficit. This capital is demanded by the private sector for investment and by the government, which needs to borrow when spending exceeds taxes collected. These factors constitute the national savings and investment identity, which can be analyzed in terms of expected rate of return, risk, and actual rate of return.

Answer 2

The following are the correct and incorrect options

Correct option: Households used to save and those savings are utilized for investment through the intermediaries like bank. Firms and governments take those funds for their investment acts.

Correct option: Foreigner can invest in the US (suppose foreign direct investment) but can’t save here, since there is difference in currency (suppose a foreigner earns in pond can’t save in US dollar).

Other options are not correct:

Incorrect option: Savings means personal savings, which are not yet kept into a bank.

Incorrect option: such purchases are investments but not savings.