The open-economy macroeconomic model includes
A.only the market for loanable funds.
B.only the market for foreign-currency exchange.
C.both the market for loanable funds and the market for foreign-currency exchange.
D.neither the market for loanable funds or the market for foreign-currency exchange.
The open-economy macroeconomic model includes
A.only the market for loanable funds.
B.only the market for foreign-currency exchange.
C.both the market for loanable funds and the market for foreign-currency exchange.
D.neither the market for loanable funds or the market for foreign-currency exchange.
Related textbook solutions
Related questions
Just as with the price of a good, the price, or exchange rate, of a currency is determined by supply and demand. However, rather than using a traditional supply and demand analysis as shown in Marthinsen, currency traders often consider whether foreign funds will flow into or out of a country as a result of a particular economic circumstance. If foreigners wish to make domestic purchases or investments, the foreign currency must first be exchanged for the domestic currency. Thus, foreign funds flowing into a country increase the demand for the domestic currency and it appreciates. Funds flowing out reverse this process leading to depreciation of the domestic currency. In the table, place an X to indicate whether each economic condition will cause foreign funds to flow in or out of the country and whether the domestic currency will appreciate or depreciate.
|
Domestic circumstance |
Funds flow in |
Funds flow out |
Currency appreciates |
Currency depreciates |
|
Real interest rates are higher than in other countries |
||||
|
Risk of civil war |
||||
|
Business taxes are raised above the world average |
X |
|||
|
Expected stock market returns are better than elsewhere |
||||
|
Inflation increases |
||||
|
A large deposit of rare earth minerals is discovered |
||||
|
Rapidly growing manufacturing sector imports more foreign raw materials |
