Chapter 3: • Production Function, Marginal Products, Factors' Demand • National Demand: Consumption, Investment, Government • Equilibrium in the Loanable Funds Market Chapter 6: • Investment, Savings and Loanable Funds Equilibrium in an Open Economy . Current Account Equilibrium in the Loanable Funds Market
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- 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 savingIn the Model of Open Economy (Figure 1 below), use Saving (S), Investment (1), Net Export (NX), Net Capital Outflow (NCO) or their combinations to fill in the blanks in below: a. Demand of Loanable Funds is b. Supply of Loanable Funds is c. Demand of Domestic Currency is d. Supply of Domestic Currency is Fill in the blank with the comma separating the answers, for example: S, S+1, NX, NCOReal interest rate Standard and Poor's reviewed the banking sector of Canada recently and ranked it score '2' due to its very low risk. Investors have welcomed the new grade at a time when very few developed economies are perceived as safe havens. Modify t three diagrams to describe the effects of ranking on Canada's open economy. Note that USD is United States dollars, CAD is Canadian dollars and NCO is net capital outflow. Demand Supply Quantity of loanable funds Real interest rate NCO Net capital outflow
- Question 23 Suppose the world consists of two countries, ABC and XYZ, only. The (autarky) equilibrium interest rate in ABC and XYZ are 15% and 12% respectively. The market for loanable funds can be described by the following equations: Country Demand for loanable funds Supply of loanable funds АВС DFABC = 300 – 7IABC SFB = 30 + 31ABC XYZ DFXYZ = 180 - 6ixyz SFc = 60 + 14ixYz Note: Interest rates are expressed in percentage points (i.e., if i = 5, then i = 5%). (inflows or When the international flows of capital are allowed, XYZ will experience net capital (enter a number here and keep your answer to the outflows) and the size of XYZ's trade balance is nearest integer) NextThe 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. 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 stable economies. This unexpected shock to the demand for assets in Mexico is known as capital flight. Summarize the results of capital flight by completing the following table. Real Interest Rate Real Exchange Rate Net Capital Outflow Effects of capital flight…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…
- Question 23 Suppose the world consists of two countries, ABC and XYZ, only. The (autarky) equilibrium interest rate in ABC and XYZ are 15% and 12% respectively. The market for loanable funds can be described by the following equations: Demand for loanable funds DFABC = 300 – 7İABC DFXYZ = 180 – 6ixyZ Supply of loanable funds SFB = 30 + 3İABC Country АВС XYZ SFc = 60 + 14ixYZ %3D Note: Interest rates are expressed in percentage points (i.e., if i = 5, then i = 5%). (inflows or When the international flows of capital are allowed, XYZ will experience net capital (enter a number here and keep your answer to the outflows) and the size of XYZ's trade balance is nearest integer)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. loanableSuppose that we’re in an open economy with this situation: - C = $85.890 - I = $125.000 - G = $56.700 - X = $65.000 - M = $55.000 - T = $60.000 Calculate GDP, national saving, private saving, and public saving. Does it has budget deficit or budget surplus?
- In the open-economy macroeconomic model, if the supply of loanable funds shifts right Group of answer choices the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts left. the interest rate falls and the supply of dollars in the market for foreign currency exchange shifts left. the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts right. the interest rate falls and the supply of dollars in the market for foreign-currency exchange shifts right.The graphs below depict the loanable funds market and the relationship between real interest rates and the level of net capital outflow (NCO) calculated in terms of the Mexican peso. REAL INTEREST RATE (Percent) 8 8 10 3 1 The Market for Loanable Funds in Mexico + 0 1 2 3 4 Supply Demand 5 6 LOANABLE FUNDS (Billions of pesos) Initial state After capital flight 7 8 (?) REAL INTEREST RATE (Percent) 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) Mexican Net Capital Outflow 8 7 6 10 5 4 3 2 NÇO + # -3 -2 -1 0 1 2 3 4 5 NET CAPITAL OUTFLOW (Billions of pesos) 6 (?) Suppose now that a sudden bout of political turmoil in Mexico causes world financial markets to become uneasy. Because investors now see Mexico as unstable, they decide to pull a portion of their assets out of Mexico and put them into more stable economies. This unexpected shock to the demand for assets in Mexico is…True or false? Low saving impedes growth in capital, productivity, and living standards for a closed economy, but not for an open economy. You'd better explain your answer by graph. (Hint: Consider elasticity of demand/supply in loanable fund market.)