Chapter 32 â A Macroeconomic Theory of the Open Economy Supply ...
Chapter 32 – A Macroeconomic Theory of the Open Economy Supply and Demand for Loanable Funds and for ForeignCurrency Exchange
S = I + NCO Supply of loanable funds comes from national saving, demand for loanable funds from domestic investment and net capital outflow Loanable funds are the domestically generated flow of resources available for capital accumulation When NCO > 0, net purchase of capital overseas adds to demand for domestically generated loanable funds When NCO exports) trade policy: government policy that directly influences the quantity of goods and services that a country imports or exports ex: tariffs and quotas
import quota rise in net exports curve, real exchange goes up, no change in NCO so quantity of dollars stays the same, net exports stays the same while imports fall because appreciation encourages imports trade policies do not affect trade balance, do not affect S or I NX = NCO = S – I Capital flight: large and sudden reduction in the demand for assets located in a country Capital flight increases NCO, greater demand for loanable funds, interest rate rises, increases supply of currency, decreases value of domestic currency (depreciation), exports cheaper and imports more expensive International finance goals make the country’s economy open to international flows of capital, use monetary policy as a tool to help stabilize the economy, maintain stability in the currency exchange rate
S = I + NCO Supply of loanable funds comes from national saving, demand for loanable funds from domestic investment and net capital outflow Loanable funds are the domestically generated flow of resources available for capital accumulation When NCO > 0, net purchase of capital overseas adds to demand for domestically generated loanable funds When NCO exports) trade policy: government policy that directly influences the quantity of goods and services that a country imports or exports ex: tariffs and quotas
import quota rise in net exports curve, real exchange goes up, no change in NCO so quantity of dollars stays the same, net exports stays the same while imports fall because appreciation encourages imports trade policies do not affect trade balance, do not affect S or I NX = NCO = S – I Capital flight: large and sudden reduction in the demand for assets located in a country Capital flight increases NCO, greater demand for loanable funds, interest rate rises, increases supply of currency, decreases value of domestic currency (depreciation), exports cheaper and imports more expensive International finance goals make the country’s economy open to international flows of capital, use monetary policy as a tool to help stabilize the economy, maintain stability in the currency exchange rate
