ECON 211 Lecture Notes - Lecture 7: Loanable Funds, Exchange Rate

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23 Jul 2018
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Chapter 31: net exports: the difference between the value of its exports and the value of its imports. Real exchange rate= (nominal exchange rate* domestic price)/foreign price. Price index: the price of a basket of goods. The interest rate adjusts to bring the supply and demand for loanable funds into balance. If the interest rate were below the equilibrium level, the quantity of loanable funds supplied would be less than the quantity demanded. The resulting shortage of loanable funds would push the interest rate upward. Conversely, if the interest rate were above the equilibrium level, the quantity of loanable funds supplied would exceed the quantity demanded. The surplus of loanable funds would drive the interest rate downward.

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