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 8 percent.
a) Calculate domestic investment, domestic saving, and net capital outflow.
b) If the net exports curve is given by NX = 142 - 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 7 percent?
d) Discuss your results.
Correct Answer:
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a) Domestic saving at the world interest...View Answer
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