BMGT 341 question2

implement of tariff

Demand for Loanable Funds Real Interest Rate Net Capital Outflow Net Exports All no changed!!

capital flight

Demand of market loanable funds increase The supply no change Supply for market foreign currency exchange Increase The demand no change Real Interest Rate Increase Real Exchange Rate Decrease Net Capital Outflow Increase

In a large open economy, what is the source of the demand for loanable funds?

National (Domestic) investment + Net capital outflow

what is the source of the domestic supply of loanable funds?

National Saving

1. In an open economy, what is the source of demand in the foreign-currency exchange market?

Net Exports

what is the source of supply in the foreign-currency exchange market?

Net capital outflow

budget deficit in foreign currency exchange

Real Interest Rate Increase Real Exchange Rate Increase Trade Balance Deficit

why is the demand curve in the foreign-currency exchange market downward sloping?

because a higher exchange rate makes domestic goods more expensive. -When the value of the domestic currency depreciates, domestic goods become less expensive relative to foreign goods, making domestic goods more attractive to domestic and foreign consumers.

why is the supply curve in the foreign-currency exchange market vertical?

because the quantity of dollars supplied for net capital outflow is unrelated to the real exchange rate

the key concern associated with***

the relationship between a firm's shareholders and its managers

In a large open economy, what is one of the reasons the demand for loanable funds is downward sloping

-A higher real interest rate makes borrowing more expensive. -A lower real interest rate encourages investment.