ECON 102 Lecture Notes - Lecture 13: Loanable Funds, Real Interest Rate, Exchange Rate

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crimsongrasshopper606

18 May 2017

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The market for loanable funds: the place to start to understand the market for loanable funds in a small open economy is with this identity: Wednesday, november 23, 2016: this difference, then, represents the quantity of dollars supplied in the market for foreign-currency exchange for the purpose of buying foreign assets. Thus, when a canadian resident imports a car made in japan, our model treats that transaction as a decrease in the quantity of dollars demanded (because net exports fall) rather than an increase in the quantity of dollars supplied. Similarly, when a japanese citizen buys a canadian government bond, our model treats that transaction as a decrease in the quantity of dollars supplied (because net capital out ow falls) rather than an increase in the quantity of dollars demanded. Equilibrium in the small open economy: let"s now consider how the market for loanable funds and the market for foreign- currency exchange are related to each other.

Related Questions

Assume an economy is closed. According to classical economic theory, explain what will be the long-run effects of an increase in taxes. You may want to organize your answer around these three parts:

A) Aggregate Supply/Output (includes a discussion of the determinant of the level of output and the effect of fiscal policy on output in the long-run

B) Aggregate Demand/Real expenditures (includes a discussion of components of expenditures, their determinants, and the effect of fiscal policy on expenditures and the composition of expenditures).

C) Loanable Funds Markets (includes a discussion of the determinant of the interest rate in the loanable funds market and the effect of the fiscal policy on the real interest rate in the long run). Please include a graph if possible.

skyfrog367

Assume an economy is closed. According to classical economic theory, explain what will be the long-run effects of the increase in government purchases of the late 2000s. You need to present and discuss a formal model in detail for this question and then explain the implications of the model in the context of the question, i.e., explain the effects of expansionary fiscal policy in the model.

You may want to organize your answer around these three parts:

A) Aggregate Supply/Output (includes a discussion of the determinant of the level of output and the effect of fiscal policy on output in the long-run

B.Aggregate Demand/Real expenditures (includes a discussion of components of expenditures, their determinants, and the effect of fiscal policy on expenditures and the composition of expenditures).

C. Loanable Funds Markets (includes a discussion of the determinant of the interest rate in the loanable funds market and the effect of the fiscal policy on the real interest rate in the long run). Please include a graph if possible.

indigoporcupine929

True or False

1. The loanable fund market demand is the demand for consumption.

( ) 2. An increase in the bond price increases the bond yield.

( ) 3. An increase in the stock price increases the stock rate of return.

( ) 4. Monopoly increases unemployment, but monopsony does not.

( ) 5. The open market operation is the changes in interest rate in open market.

( ) 6. The high reserve requirement has the direct relationship with money creation.

( ) 7. The money value and price level have inverse relationship.

( ) 8. The nominal interest rate is related to inflation.

( ) 9. An inflation tax is the tax put on inflation.

( ) 10. Government expenditure belongs to the aggregate supply.

( ) 11. 1973-1975 recession is due to aggregate demand shift.

( ) 12. 2001 recession is due to aggregate demand shift.

( ) 13. As potential GDP is smaller than actual GDP, recession occurs.

( ) 14. A money supply results in shift of aggregate supply GDP.

( ) 15. The multiplier effect is bigger as marginal propensity to consume is smaller.

( ) 16. The multiplier effect comes together with crowding effect.

( ) 17. A recession results in decrease of welfare program.

( ) 18. A recession results in decrease of tax revenue.

( ) 19. The unemployment and inflation are in inverse relation.

( ) 20. The unemployment and inflation relation does not related to aggregate demand.

( ) 21. A quota deceases export

( ) 22. A tariff decreases import.

( ) 23. A real exchange rate is not related to nominal exchange rate.

( ) 24. A purchasing power parity exchange rate is not related to nominal exchange rate.

( ) 25. A flexible exchange rate is not related to nominal exchange rate.

( ) 26. The export increases consumer surplus.

( ) 27. The trade deficit results in capital inflow.

2. Summarize

(1) loanable fund market

(2) monetary policy tools

(3) quantity equation

(4) Okun's law

(5) mutiplier effect and crowding effect

(6) automatic stabilizers

(7) risk aversion and risk taking

(8) Fisher effect

(9) aggregate model

(10) aggregate demand shift

(11) Phillips curve

(12) protectionist policies

(13) capital inflow and capital outflow

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ECON 102 Lecture Notes - Lecture 13: Loanable Funds, Real Interest Rate, Exchange Rate

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