Suppose that real interest rates decrease across Europe. This development will funds to U.S. net capital outflow at all U.S. real interest rates, which in turn will cause the because net capital outflow is a component of the relevant curve in the loanable funds market. loanable

Suppose that real interest rates decrease across Europe. This development will funds to U.S. net capital outflow at all U.S. real interest rates, which in turn will cause the because net capital outflow is a component of the relevant curve in the loanable funds market. loanable

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 6CQ

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Question

Suppose that real interest rates decrease across Europe.
This development will
funds to
U.S. net capital outflow at all U.S. real interest rates, which in turn will cause the
because net capital outflow is a component of the relevant curve in the loanable funds market.
loanable

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The following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO) measured in terms of the Mexican currency, the peso. The Market for Loanable Funds in MexicoDemandSupply012345678987654321REAL INTEREST RATE (Percent)LOANABLE FUNDS (Billions of pesos)Demand Supply Mexican Net Capital OutflowNCO-4-3-2-10123456987654321REAL INTEREST RATE (Percent)NET CAPITAL OUTFLOW (Billions of pesos)NCO Complete the first row of the table to reflect the state of the markets in Mexico. Real Interest Rate Net Capital Outflow (NCO) (Percent) (Billions of pesos) Initial state After capital flight Now, suppose that Mexico experiences a sudden bout of political turmoil, which causes world financial markets to become uneasy. Because people now view Mexico as unstable, they decide to pull some of their assets out of Mexico and put them into more…
Explain the effect of an investment tax credit policy on interest rate, loanable funds, net capital outflow, real exchange rate and trade balance in a large open economy. Also support your point of view by graph.
Other things equal, an increase in the U.S. netcapital outflow _________ the demand for loanablefunds and _________ the supply of dollars in themarket for foreign currency exchange.a. increases; increasesb. increases; decreasesc. decreases; increasesd. decreases; decreases
Suppose that the government decides to cut spending. In a three graphs diagram, show theimpact of this policy on real interest rate, national saving, investment, net capital outflows,demand for currency (NX), and supply of currency? Will the currency appreciate ordepreciate?
Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing (Balanced trade/ a trade deficit/ a trade surplus) Now, suppose the government is experiencing a budget deficit. This means that ( National saving will increase/ national saving will decrease/ Domestic investment will increase / domestic investment will decrease) which leads to ( an increase in the supply of / a decrease in the supply of / an increase in the demand for/ a decrease in the demand for) loanable funds. After the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The following graph shows the demand curve in the foreign-currency exchange market. Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) to show the supply curve after the budget deficit. Summarize the…
Due to concerns about the COVID-19 global pandemic crisis, the government of Mauro considers increasing its spending to finance for the National Economic Recovery program, which will raise the government budget deficit further. Provide your analysis to evaluate the effect of this policy to the market for loanable funds, net capital outflow, and the exchange rate.
What variable makes the relevance/link between loanable funds market and market for foreign-currency exchange?
3.a. If a country experiences a substantial increase in Net Capital Inflow, how do you think themarket of loanable funds will change in that country? Drawing a diagram explain whathappens to interest rate. b. Your friend tells you that he has read in an article that a country’s private sector might getinto trouble if the government keeps on borrowing from the private sector. Drawing adiagram for the markets of loanable finds, show your friend why this might be the case. Alsoreport the name of this phenomenon.
“The result of the war that happened in Country A, it made Country A has negative public saving which is reduces national saving (the sum of public and private saving)”. Based on this information, explain (Show it with the graph) what happen in the market for loanable funds and the market for foreign currency exchange
In an open economy, the source of the demand for loanable funds is Group of answer choices investment + net capital outflow national saving + net capital outflow investment + the government budget deficit national saving
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