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Unformatted text preview: Short Essay #6 1. Describe the markets for loanable funds and foreign currency. Explain how these two markets are linked. In the market for loanable funds, the real interest rate adjusts to balance the supply of loanable funds from national saving, and the demand for loanable funds from domestic investment and net capital outflow. In the market for foreign currency exchange, the real exchange rate adjusts to balance the supply of dollars and the demand for dollars. And since net capital outflow is part of the demand for loanable funds, and also provides the supply of dollars for foreign currency exchange it links the two markets. 2. What would be the affect of an increase in U.S. exports to Japan on the demand for U.S.Dollars and the supply of yen? An increase in U.S. exports to Japan would cause the demand for U.S. dollars to increase because foreigners need An increase in U....
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- Spring '08