Textbook Notes (368,439)
United States (206,045)
Economics (294)
ECON 201 (43)
Dr.Neri (10)

Macroeconomics 19.docx

2 Pages
Unlock Document

ECON 201

Macroeconomics Chapter 19 AMacroeconomic Theory of the Open Economy  Market for Loanable Funds  Loanable funds: the domestically generated flow of resources available for capital accumulation.  S = I + NCO  Supply comes from savings  Demand comes from domestic investment and net capital outflow  Real interest rate balances supply and demand  Ahigher real interest rate encourages people to save and raises the quantity of loanable funds supplied.  Also, makes borrowing to finance capital projects more costly, discouraging it and reducing the quantity demanded.  Ahigh U.S. real interest rate, discourages from buying foreign assets and buy U.S ones, reducing net capital outflow  At the equilibrium interest rate, the amount that people want to save exactly balances the desired quantities of domestic investment and net capital outflow.  Market for Foreign Currency Exchange  Real exchange rate balances supply and demand  Appreciation of the real exchange rate reduces the quantity of dollars demanded in the market for foreign-currency exchange  Net capital outflow does not depend on exchange rates (supply curve) because foreign assets will be cheaper but also the money will be lost when converted back into U.S. dollars.  At the equilibrium real exchange rate, the demand for dollars by foreigners arising from the U.S net exports of goods and services exactly balances the supply of dollars fromAmericans arising from U.S. net capital outflow.  Net Capital Outflow: the Link between the Two Markets  Demand in loanable funds, supply in foreign-currency excha
More Less

Related notes for ECON 201

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.