ECON 104 Chapter Notes - Chapter 13: Exchange Rate, Loanable Funds, Real Interest Rate

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lemonimpala602

4 Apr 2016

School

University of Victoria

Department

Economics

Course

ECON 104

Professor

Zhang Lijun

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Document Summary

Chapter 13 a macroeconomic theory of the small open economy. Assumpions: the economy"s gdp is given, the economy"s price level is given, the economy"s real interest rate is given. In the market for loanable funds, supply in determined by naional saving, and demand is determined by domesic investment. S= i + nco: the demand curve slopes downward because a higher real exchange rate makes. Canadian goods relaively more expensive and reduces the quanity of dollars demanded to buy those goods: the supply curve in verical because it represents nco which is determine by saving, investment, and the world interest rate. Net capital ouflow is the link between the market for loanable funds and the market for foreign-currency exchange. The net capital ouflow determined by the market for loanable funds is inputed into the market for foreign-currency exchange as the supply curve.

Related Questions

In an open economy, why is the supply curve in the foreign currency exchange market vertical?

(i) Net capital outflow is determined by the real interest rate, not the real exchange rate.

(ii) Net capital outflow is extremely sensitive to small changes in the real exchange rate.

(iii) Net capital outflow equals net exports.

(iv) Net capital outflow is determined by real GDP, not the real exchange rate.

sapphirescorpion696

QUESTION 11

If the demand for investment loans rises, this could be the result of

		the discovery of new and better roundabout methods of production.
		a lower rate of time preference in society.
		a lower interest rate.
		a higher interest rate.
		a and c

1 points

QUESTION 12

Which of the following statements is true?

		All persons have a high rate of time preference.
		People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference.
		People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference.
		A high interest rate is the cause of a high rate of time preference.
		none of the above

1 points

QUESTION 13

Which of the following statements is true?

		The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate.
		The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate.
		The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent.
		It is the nominal interest rate-not the real interest rate-that matters to borrowers.

1 points

QUESTION 14

If there is an increase in the expected inflation rate, then,

		the supply and demand for loanable funds will decrease.
		the supply and demand for loanable funds will increase.
		the supply of loanable funds will decrease, and the demand for loanable funds will increase.
		the supply of loanable funds will increase, and the demand for loanable funds will decrease.

1 points

QUESTION 15

If suddenly a 4 percent inflation rate (instead of a zero percent inflation rate) is expected by both suppliers and demanders in the loanable funds market, then

		the demand for loanable funds curve will shift rightward, and the supply of loanable funds curve will shift leftward.
		the demand for loanable funds curve will shift leftward, and the supply of loanable funds curve will shift rightward.
		both the demand for loanable funds curve and the supply of loanable funds curve will shift leftward.
		both the demand for loanable funds curve and the supply of loanable funds curve will shift rightward.

How do these things effect the U.S market of foreign-currency exchange and on net capital outflow (NCO): A tax reform that imposes higher capital gains tax to Americans involved in offshore banking?

Generalized increase in income tax rates not accompanied by any change in government spending.

A financial reform that sets limits to credit card fees.

A higher real interest rate in a more stable neighbor economy.

Unilateral removal of U.S import quotas.

Political instability.

A deficit-neutral tax incentive for exporting companies.

ECON 104 Chapter Notes - Chapter 13: Exchange Rate, Loanable Funds, Real Interest Rate

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