In the open-economy macroeconomic model,if the supply of loanable funds shifts right,then
A)net capital outflow increases so the demand for dollars in the market for foreign-currency exchange shifts right.
B)net capital outflow increases so the supply of dollars in the market for foreign-currency exchange shifts right.
C)net capital outflow decreases so the demand for dollars in the market for foreign-currency exchange shifts left.
D)net capital outflow decreases so the supply of dollars in the market for foreign-currency exchange shifts right.

Question

Quizplus · Accepted Answer

An increase in the supply of loanable funds would lead to a decrease in domestic interest rates, making domestic investments less attractive and increasing the incentive for domestic investors to lend abroad. This would lead to an increase in net capital outflow, shifting the supply of dollars in the market for foreign-currency exchange to the right. The demand for dollars in the market would remain unchanged, assuming that there are no changes in other factors that affect the demand for dollars such as changes in exports or imports. Therefore, the correct choice is B.

In the Open-Economy Macroeconomic Model,if the Supply of Loanable Funds