Principles of Economics- Mankiw (5th) 664

Principles of Economics- Mankiw (5th) 664 - Quantity of...

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686 PART ELEVEN THE MACROECONOMICS OF OPEN ECONOMIES relationship between the interest rate and net foreign investment. This net-foreign- investment curve is the link between the market for loanable funds and the mar- ket for foreign-currency exchange. SIMULTANEOUS EQUILIBRIUM IN TWO MARKETS We can now put all the pieces of our model together in Figure 30-4. This figure shows how the market for loanable funds and the market for foreign-currency (a) The Market for Loanable Funds (b) Net Foreign Investment Net foreign investment, NFI Real Interest Rate Real Interest Rate (c) The Market for Foreign-Currency Exchange
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Unformatted text preview: Quantity of Dollars Quantity of Loanable Funds Net Foreign Investment Real Exchange Rate r 1 1 E 1 Supply Supply Demand Demand Figure 30-4 T HE R EAL E QUILIBRIUM IN AN O PEN E CONOMY . In panel (a), the supply and demand for loanable funds determine the real interest rate. In panel (b), the interest rate determines net foreign investment, which provides the supply of dollars in the market for foreign-currency exchange. In panel (c), the supply and demand for dollars in the market for foreign-currency exchange determine the real exchange rate....
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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