Suppose that real interest rates decrease across Europe. This development will (Increase/Decrease) U.S. net capital outflow...

Suppose that real interest rates decrease across Europe. This development will (Increase/Decrease) U.S. net capital outflow at all U.S. real interest rates, which in turn will cause the (Demand for/Supply of) loanable funds to (Increase/Decrease) because net capital outflow is a component of the relevant curve in the loanable funds market.

Solutions

Expert Solution

If real interest rates decrease across Europe, it implies that investors will not like to invest in Europe and would move their capital in some other country where relatively interest rate is higher

This development will Decrease U.S. net capital outflow at all U.S. real interest rates. This also implies that capital inflows in the US increase more than outflows. Investors will demand more US dollars

This will cause the Demand for loanable funds to decrease because net capital outflow is a component of the construction that shows loanable funds market and forex market.

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing

Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the dollar. Assume that the economy is currently experiencing a balanced government budget. Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds....

Suppose that you countrymen decide to increase their saving. If the elasticity of net capital outflow...

Suppose that you countrymen decide to increase their saving. If the elasticity of net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect in domestic investment?

In the open-economy macroeconomic model, what would make Panama’s net capital outflow decrease? a. a decrease in...

In the open-economy macroeconomic model, what would make Panama’s net capital outflow decrease? a. a decrease in Canadian interest rates b. a decrease in Panamanian interest rates c. an appreciation of the Panamanian balboa d. an increase in Panama’s net exports 21. Which of the following shifts aggregate demand to the right? a. a decrease in the money supply b. technological improvement that increases the profitability of capital investments c. the repeal of an investment tax credit d. a decrease in the price level 22. Which of the following shifts...

In the market for foreign currency exchange, the amount of U.S. net capital outflow desired at...

In the market for foreign currency exchange, the amount of U.S. net capital outflow desired at each real interest rate represents the quantity of U.S. dollars supplied for the purpose of buying foreign assets. Select one: True False Tony, a U.S. citizen, wants to use his U.S currency to purchase bonds from a German corporation. As a result, Tony is a supplier of U.S. dollars in the foreign currency exchange market. Select one: True False Question text Suppose the imposition...

Current one-year interest rates in Europe is 4 percent, while one-year interest rates in the U.S....

Current one-year interest rates in Europe is 4 percent, while one-year interest rates in the U.S. is 2 percent. You convert $200,000 to euros and invests them in France. One year later, you convert the euros back to dollars. The current spot rate of the euro is $1.20. a. According to the IFE, what should the spot rate of the euro in one year be? b. If the spot rate of the euro in one year is $1.12, what is...

Investment is related to the interest rate, while net capital outflow (NCO) is related...

Investment is ________ related to the interest rate, while net capital outflow (NCO) is ________ related to the interest rate. positively; negatively positively; positively negatively; negatively negatively; positively Using the information in the table shown, what is the inflation rate in 2014? Year CPI 2012 121.7 2013 122.8 2014 125.2 2015 126.6 2016 128.4 - 1 % None of the above It cannot be calculated without knowing the base year. 0.9 % As new goods and services become available: the...

In the open-economy macroeconomic model, which of the following would make Mexico's net capital outflow decrease?

In the open-economy macroeconomic model, which of the following would make Mexico's net capital outflow decrease? options: a decrease in Canadian interest rates an appreciation of the Mexican peso a decrease in Mexican interest rates an increase in Mexico's net exports

A decrease of human capital in an economy tends to, a. increase real incomes, because of...

A decrease of human capital in an economy tends to, a. increase real incomes, because of increased labor productivity b. increase real incomes, because of increased labor bargaining power c. decrease real incomes, because of decreased labor productivity d. decrease real incomes, because of decreased labor bargaining power

Is it true that an increase in interest rates always lowers the net worth of a...

Is it true that an increase in interest rates always lowers the net worth of a financial intermediary? Explain why that is.

Will a decrease in oil prices have an IMMEDIATE IMPACT on the U.S. real interest rate?...

Will a decrease in oil prices have an IMMEDIATE IMPACT on the U.S. real interest rate? Why or why not?

Subjects