Essay
Suppose the market for loanable funds is described by the equations I = 180 ? 16r and S = 8 + 24r.Suppose also that the world interest rate is 6 percent.
a)Calculate domestic investment,domestic saving,and net capital outflow.
b)If the net exports curve is given by NX = 74 - 2X,where X is the real exchange rate,calculate the equilibrium real exchange rate and net exports.
c)How does the real exchange rate change when the world interest rate decreases to 5 percent?
d)Discuss your results.
Correct Answer:
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a) Domestic saving at the world interest...View Answer
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