Search for notes by fellow students, in your own course and all over the country.
Browse our notes for titles which look like what you need, you can preview any of the notes via a sample of the contents. After you're happy these are the notes you're after simply pop them into your shopping cart.
Document Preview
Extracts from the notes are below, to see the PDF you'll receive please use the links above
Alya Hamizah Haji Zam Sharin 20B1066
Tutorial 4
February 15, 2021
1
...
a
...
This affects the demand
curve in the loanable funds market
...
A higher interest rate makes
domestic assets more attractive, and this in turn reduces net capital outflow
...
The trade balance will be affected as
when the dollar appreciates, the products will become more expensive for other
countries in the foreign market
...
b
...
Why might that be the
case?
The representatives will oppose this policy as there will be a decrease in exports and
they will lose profit as the policy will be made
...
The chapter notes that the rise in the U
...
trade deficit during the 1980s was due largely to
the rise in the U
...
budget deficit
...
S
...
a
...
S
...
How did
this affect net exports at any given exchange rate?
If US products decline in quality, there will be a negative impact on demand for US
goods
...
This causes the exchange rate to depreciate
...
Since net exports represent the demand of dollars, a fall in net
exports shift the demand curve for dollars to the left
...
Draw a three-panel diagram to show the effect of this shift in net exports on the U
...
real exchange rate and trade balance
...
Because this situation does not
affect the loanable funds market, it will be remained unchanged and interest rates will
remain the same
...
NCO = NX
...
c
...
S
...
A decrease in the
decline of quality of the US goods does will cause a shift in the net exports but it
does not lead to a change in the trade balance
...
3
...
Answer the
following questions in words and with a diagram
...
What happens to the demand for dollars in the market for foreign-currency
exchange?
b
...
What happens to the quantity of net exports?
ER
NCO
e2
e1
d1
d
Q1
Foreign Currency
Exchange
The demand for dollars in the market for foreign-currency exchange increases,
this would cause the curve to shift to the left from NCO to NCO1
...
Exports would be more expensive and imports would be cheaper in terms of the
domestic products
...
Net exports
would remain unchanged because NCO is not affected
...
Over the past decade, some of Chinese saving has been used to finance American
investment
...
a
...
S
...
S
...
S
...
S
...
S
...
This is because US has more funds now that China does not buy anymore
...
US savings and investments would increase
...
The net capital outflow curve also shifts
to the right from NCO to NCO1
...
b
...
S
...
This increase in supply
causes dollars to depreciate from e1 to e2
...
Interest
rates
s
r2
IR
r2
r1
r1
D
Q1
Q2
D1
NCO1
NCO
Q1
Loanable Funds
Q2
Net Capital
Output
ER
e1
e2
d
Q1
Q2
Foreign Currency
Exchange