In the open-economy macroeconomic model,if the supply of loanable funds shifts left
A)the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts right.
B)the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left.
C)the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts right.
D)the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts left.

Question

Quizplus · Accepted Answer

If the supply of loanable funds shifts left, it means there are fewer funds available for borrowing. This would create upward pressure on interest rates, as borrowers will have to pay more to attract lenders. As a result, the interest rate rises. This increase in interest rates would make it more attractive for foreign investors to save their money in the domestic economy, which would increase the supply of dollars in the market for foreign currency exchange. Thus, the supply of dollars in the market for foreign currency exchange would shift right, leading to an appreciation of the domestic currency.

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