Chapter 13

Mankiw, N., Kneebone, R., & McKenzie, K. (2020).Principles of Macroeconomics(8th Canadian ed.). Toronto, ON: Nelson Education.

FIGURE 13.4 (a) The Market for Loanable Funds The Effects of an Increase Real in the World Interest Rate Interest Supply of loanable funds Rate Net capital outflow (S - 1) from national saving (S) When the world interest rate increases, it increases the rut supply of loanable funds 2. . . . causes net capital made available by Canadians 1. An ...... outflow to increase. and reduces the quantity of increase in the world loanable funds demanded interest for domestic investment. For rate . . . both of these reasons, net capital outflow increases. An increase in the supply of dol- Demand for loanable lars in the market for foreign- funds for domestic investment (1) currency exchange causes the Canadian dollar to depre- Quantity of ciate. The depreciation of the Loanable Funds dollar causes net exports to rise. (b) The Market for Foreign-Currency Exchange Real Exchange Supply of dollars Rate (S - M1 (5 - 12 3. The increase in net capital outflow increases the supply of 4. . . . which E1 dollars to be exchanged causes the + into foreign currency . . . real exchange rate to depreciate. Demand for dollars (NX) Quantity of Dollars