ECN 204 Lecture Notes - Loanable Funds, Real Interest Rate, Foreign Exchange Market
25 Apr 2012
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Chapter 13: a macroeconomic theory of the open economy. In 1999, canada"s nco turned positive and remained so till 2008, canadians were buying more foreign assets than foreigners were buying canadian assets = canadians savings are going abroad. Market for loanable funds: coordinates the economy"s saving, investment, and the flow of loanable funds abroad called net capital outflow. Identity: saving (s) = domestic investment (i) + net capital outflow (nco) Positive nco: the amount of national saving exceeds the amount needed to finance the purchase of domestic capital; the amount left over can finance purchase of asset abroad. Negative nco: the amount of national saving is insufficient to finance the purchase of domestic capital; the shortfall can be met by the savings of foreigners. A dollar of saving can be used to finance the purchase of domestic capital and the purchase of foreign assets. Demand for loanable funds = i + nco.
