The open-economy macroeconomic model includes
A)only the market for loanable funds.
B)only the market for foreign-currency exchange.
C)both the market for loanable funds and the market for foreign-currency exchange.
D)neither the market for loanable funds or the market for foreign-currency exchange.

Question

Quizplus · Accepted Answer

The open-economy macroeconomic model includes both the market for loanable funds and the market for foreign-currency exchange since it takes into account the interactions between the domestic economy and the rest of the world. The market for loanable funds represents the domestic savings and investment decisions, while the market for foreign-currency exchange represents the flow of goods, services, and financial assets between the domestic and foreign markets. Therefore, both markets are relevant in analyzing the effects of international trade and capital flows on domestic macroeconomic variables such as output, inflation, and exchange rates.

The Open-Economy Macroeconomic Model Includes