Essay
Suppose the market for loanable funds is described by the equations I = 18 - 6r and S = 8 + 4r.
a)Find the relationship between net capital outflow and the world interest rate rw.
b)If net exports are described by NX = 16 - 4X,find the relationship between NX and the world interest rate at the equilibrium exchange rate.
c)For rʷ = 1.4,what is the elasticity of NX with respect to rʷ?
d)What is the relationship between the equilibrium exchange rate and the world interest rate? Discuss your result.
Correct Answer:
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a) NCO = S - I when r = rʷ: NCO = 8 + 4r...View Answer
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