The variable that links the market for loanable funds and the market for foreign-currency exchange is
A)net capital outflow.
B)national saving.
C)exports.
D)domestic investment.

Question

Quizplus · Accepted Answer

Net capital outflow is the difference between a country's total savings and its domestic investment. It represents the amount of domestic assets that are financed by foreign investors. In the market for loanable funds, net capital outflow represents the supply of loanable funds available to foreign borrowers. In the market for foreign-currency exchange, net capital outflow represents the demand for foreign currency to purchase foreign assets. Therefore, net capital outflow is the variable that links these two markets. Choices B, C, and D are incorrect because they do not represent the link between the two markets.

The Variable That Links the Market for Loanable Funds and the Market