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:

Verified
a) NCO = S - I when r = rw: NCO = 8 + 4r...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q2: In an open economy, the supply of
Q176: Figure 13-1 <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB7554/.jpg" alt="Figure 13-1
Q178: In an open economy, what does the
Q179: In the market for foreign-currency exchange in
Q180: In the open-economy macroeconomic model, we focus
Q182: If there is a surplus of loanable
Q183: Suppose that from 1980 to 1987, Canadian
Q184: When a country suffers from capital flight,
Q185: What does the value of net exports
Q186: Which statement best predicts the effects of