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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Describe supply and demand in the market for loanable funds and the market for foreign-currency exchange. How are these markets linked?

To determine

The supply and demand for lonable funds in the foreign exchange market and the link between the two markets.

Explanation

The foreign exchange market is the place of market where the participants are able to buy and sell different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy, which includes the loans, bonds, and the savings deposits.

The lonable fund supply is from the national savings of the economy. The national savings of the economy is the summation of the private savings and the government savings of the economy. This together forms the national savings, which forms the supply base of the lonable funds...

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