As the United States economy moves out of a recession, U.S. financial investors increase their purchases of stocks that are expected to earn a higher rate of return than they are currently earning on their savings account deposits.
- Using a correctly labeled loanable funds graph, show the impact of the financial investors' actions on real interest rates.
- Explain how the change in interest rates you identified in part (A) will impact the following:
- the international value of the dollar
- net exports of the United States (based on the changing value of the dollar)
- Explain how the change in net exports will impact U.S. aggregate demand in the short-run.
- Explain how the change in U.S. aggregate demand will impact unemployment in the short-run.
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