Question

6. Suppose the amount of national saving at each interest rate remains the same. If U.S. firms decide to invest
less domestically at each interest rate, then the real interest rate in the U.S. ___________ and U.S. net
capital outflow __________.
A. increases; increases
B. increases; decreases
C. increases; remains the same
D. decreases; decreases
E. decreases; increases
7. Suppose the amount of national saving at each interest rate remains the same. If U.S. firms decide to invest
more domestically at each interest rate, then the real interest rate in the U.S. _____________, U.S. net capital
outflow __________, and the real exchange rate of the U.S. dollar ___________.
A. increases; increases; depreciates
B. increases; decreases; appreciates
C. decreases; decreases; depreciates
D. decreases; increases; appreciates
E. decreases; increases; depreciates
8. An increase in the U.S. government budget deficit shifts the supply of U.S. loanable funds to the _________.
If the demand for loanable funds does not shift, then the supply shift will cause U.S. interest rates to
___________ and U.S. domestic investment to __________.
A. left; rise; decrease.
B. left; fall; decrease.
C. left; fall; increase.
D. right; rise; increase.
E. right; fall; increase.

Answer 1

6) *option (e)*
Explanation- When US firms invests less domestically then investment decreases and real interest rate decreases and increases outflow.

7) *option (b)*
Explanation- When US firm decides to invest more , then net domestic investment increases and real interest also increases resulting reduction in capital outflow and exchange rate of dollar appreciate in exchange market.

8) *option (e)*
Explanation- When there is increase in government budget deficit,loan funds increase so it's supply curve is shifted to the right.
If there is no change in demand then interest rate falls and domestic investments of US also increases.