In the open-economy macroeconomic model,equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars which comes from
A)U.S.national saving and the demand for dollars for U.S.net exports.
B)U.S.net capital outflow and the demand for dollars for U.S.net exports.
C)domestic investment and the demand for U.S.net exports.
D)foreign demand for U.S.goods and services and U.S.demand for foreign goods and services.

Question

Quizplus · Accepted Answer

Equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars, which comes from U.S. net capital outflow, and the demand for dollars for U.S. net exports. U.S. net capital outflow represents the net flow of U.S. investment abroad minus the net flow of foreign investment in the U.S. Thus, it affects the supply of dollars in the market for foreign-currency exchange. On the other hand, the demand for dollars for U.S. net exports is determined by foreign buyers seeking to purchase goods and services from the U.S. Thus, the equilibrium in the foreign-currency exchange market is determined by the balance between the supply and demand for dollars.

In the Open-Economy Macroeconomic Model,equilibrium in the Market for Foreign-Currency