In the open-economy macroeconomic model,if the supply of loanable funds increases,then the interest rate
A)and the real exchange rate increase.
B)and the real exchange rate decrease.
C)increases and the real exchange rate decreases.
D)decreases and the real exchange rate increases.

Question

Quizplus · Accepted Answer

An increase in the supply of loanable funds leads to a decrease in the interest rate. Lower interest rates make domestic assets less attractive, leading to a decrease in the real exchange rate as the currency depreciates.

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