Chapter 14 Macroeconomics

Front 1

In a large open economy, what is one of the reasons the demand for loanable funds is downward sloping?

Back 1

A higher real interest rate makes borrowing expensive

Front 2

The supply of loanable funds comes from?

Back 2

National saving

Front 3

The demand for loanable funds coming from?

Back 3

investment and net capital outflow

Front 4

All components of the demand and supply of loanable funds depend?

Back 4

On the real interest rate in the domestic economy

Front 5

The market for loanable funds can be described by the following equation-

Back 5

S=I +NCO

S=saving

I= Investment

NCO= Net capital outflow

Front 6

There is a negative relationship between the real interest rate and the quantity of loanable funds demanded

T or F

Back 6

True

Front 7

In an open economy, what is the source of supply in the foreign-currency exchange market?

Front 8

market for loanable funds

Back 8

Coordinates the economy's saving, investment, and flow of loanable funds abroad (called the net capital outflow).

Front 9

The market for foreign currency exchange

Back 9

coordinates people who want to exchange the domestic currency for the currency of other countries

Front 10

Market for loanable funds

Back 10

All savers go to this market to deposit their saving, and all borrowers go to this market to get their loans

Front 11

In the market for loanable funds there is one interest rate?

Back 11

It is the return to saving, and the cost of borrowing

Front 12

Saving is equal to?

Back 12

The domestic Investment + Net capital outflow

Front 13

The supply of loanable funds comes from?

Back 13

Savings

Front 14

The demand from loanable funds comes from?

Back 14

Domestic Investment + Net Capital outflow

Front 15

Loanable funds should be interpreted as?

Back 15

the domestically generated flow of resources available for capital accumulation

Front 16

What does the purchase of a capital asset do?

Back 16

It adds to the demand for loanable funds

Front 17

When net capital outflow is positive?

Back 17

The country is experiencing a net outflow of capital.

Front 18

When net capital outflow is positve?

Back 18

The country is experiencing a net inflow of capital

Front 19

What do capital resources coming from abroad do?

Back 19

Reduce the demand for domestically generated loanable funds

Front 20

What does the net purchase of capital overseas do?

Back 20

adds to the demand for domestically generated loanable funds

Front 21

In the market for loanable funds, the quantity of loanable funds and the quantity of loanable funds demanded depend on what?

Back 21

The real interest rate

Front 22

A higher real interest rate encourages people to do what? Does it raise or lower the quantity of loanable funds supplied.

Back 22

Save, it raises the quantity of loanable funds supplied

Front 23

What does a higher real interest rate to do investors?

Back 23

it makes it more costly, thus it discourages investment and reduces the quantity of loanable funds demanded.

Front 24

What happens if the interest rate were below equilibrium level? does the interest rate go up or down?

Back 24

The quantity of loanable funds supplied would be less than the quantity demanded.

THe resulting shortage of loanable funds would push the interest rate upwards

Front 25

What happens if the interest rate were above equilibrium level? Does it move the interest rate up or down?

Back 25

The quantity of loanable funds supplied would exceed the quantity demanded.

The surplus of loanable funds would push the interest rate downward

Front 26

What happens at the equilibrium interest rate?

Back 26

The supply of loanable funds equals the demand

That means that the amount that people want to save exactly balances the desired quantities of domestic investment and net capital outflow

Front 27

What is the Second market in the model?

Back 27

Market of Foreign-Exchange and currency

Front 28

What do participants in the market of foreign exchange and currency do?

Back 28

They U.S dollars for foreign currencies

Front 29

What does NCO=

Back 29

NCO=NX

Net capital outflow= Net exports

Front 30

When the U.S economy is running a trade surplus?

Back 30

foreigners are buying more U.S goods and services than Americans are buying foreign goods and services

Front 31

When the U.S economy is running a trade deficit?

Back 31

Americans are spending more on foreign goods and services than they are earning from selling abroad

Front 32

Net capital outflow represents what?

Back 32

The quantity of dollars supplied for the purpose of buying foreign assets

Front 33

What do net exports represent?

Back 33

The quantity of dollars demanded for the purpose of buying U.S net exports of goods and services

Front 34

What price balances the supply and demand in the market for foreign currency exchange?

Back 34

The real exchange rate

Front 35

What happens when the U.S real exchange rate appreciates?

Back 35

U.S goods become more expensive relative to foreign goods, making U.S goods less attractive to consumers both at home and abroad.

As a result exports from the United States fall, and imports into the United States rise.