What are the main elements of our open-economy macroeconomic model?
A) the market for loanable funds, the foreign-currency market, and the price level
B) the market for goods and services, the price level, and GDP
C) the market for goods and services, net exports, and GDP
D) the market for loanable funds, net capital outflow, and the foreign-currency market

Question

Quizplus · Accepted Answer

The main elements of an open-economy macroeconomic model are the market for loanable funds, net capital outflow, and the foreign-currency market. The market for loanable funds determines the interest rate, which influences net capital outflow (the difference between the amount of domestic capital invested abroad and the amount of foreign capital invested domestically). This, in turn, affects the exchange rate in the foreign-currency market. Together, these three components determine the overall level of investment and economic growth in the open economy.

What Are the Main Elements of Our Open-Economy Macroeconomic Model