Question

Question 10

Use the market for loanable funds shown in Figure B to explain what happens to private savings, private investment spending, and the interest rate if the following events occur. Assume that there are no capital inflows or outflows.

Figure B

Assume that there is a large increase in the investment from foreign sectors (purchasing U.S. assets). This will

		reduces the equilibrium interest rate and private investment spending will rise.
		raises the equilibrium interest rate and private investment spending will rise.
		reduces the equilibrium interest rate and private investment spending will fall.
		raises the equilibrium interest rate and private investment spending will fall.

Answer 1