Chapter

Crypto Ultimatum

How to earn money on Bitcoin exchange

Get Instant Access

Page 720 The supply of loanable funds comes from national saving. The demand for loanable funds comes from domestic investment and net capital outflow. The supply in the market for foreign-currency exchange comes from net capital out flow. The demand in the market for foreign-currency exchange comes from net exports.

Page 723 The two markets in the model of the open economy are the market for loanable funds and the market for foreign-currency exchange. These markets determine two relative prices: (1) the market for loanable funds determines the real interest rate and (2) the market for foreign-currency exchange determines the real exchange rate.

Page 732 If Americans decided to spend a smaller fraction of their incomes, the increase in saving would shift the supply curve for loanable funds to the right, as shown in Figure 32-1. The decline in the real interest rate increases net capital outflow and shifts the supply of dollars to the right in the market for foreign-currency exchange. The result is a decline in the real exchange rate. Since the real interest rate is lower, domestic investment increases. Since the real exchange rate declines, net exports increase and the trade balance moves toward surplus. Overall, saving and domestic investment increase, the real interest rate and real exchange rate decrease, and the trade balance moves toward surplus.

Was this article helpful?

0 0
Get Out Of Debt 101

Get Out Of Debt 101

Finally Revealed: Breakthrough Method GUARANTEED to help you get out of debt in record time. Revolutionary approach to debt elimination and wealth building proves average people can produce outstanding results.

Get My Free Ebook


Post a comment