When the loanable funds and foreign exchange markets are in equilibrium,
A) there are no leakages from the circular flow of income.
B) macro equilibrium cannot occur.
C) the leakages from the circular flow will equal the injections into it.
D) injections into the circular flow will exceed leakages from it.

Question

Quizplus · Accepted Answer

When loanable funds and foreign exchange markets are in equilibrium, it means that the demand for loanable funds and foreign exchange supply are equal, and so are the supply of loanable funds and foreign exchange demand. As a result, leakages from the circular flow (savings, taxes, and imports) will equal the injections into it (investment, government spending, and exports), which creates a macroeconomic equilibrium.

When the Loanable Funds and Foreign Exchange Markets Are in Equilibrium