Suppose the market for loanable funds is described by the equations I = 18 - 6r and S = 8 + 4r.
a) Find the relationship between net capital outflow and the world interest rate rw.
b) If net exports are described by NX = 16 - 4X, find the relationship between NX and the world interest rate at the equilibrium exchange rate.
c) For rw = 1.4, what is the elasticity of NX with respect to rw?
d) What is the relationship between the equilibrium exchange rate and the world interest rate? Discuss your result.

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The Answer of Suppose the market for loanable funds is described by the equations I = 18 - 6r and S = 8 + 4r.
a) Find the relationship between net capital outflow and the world interest rate rw.
b) If net exports are described by NX = 16 - 4X, find the relationship between NX and the world interest rate at the equilibrium exchange rate.
c) For rw = 1.4, what is the elasticity of NX with respect to rw?
d) What is the relationship between the equilibrium exchange rate and the world interest rate? Discuss your result.

Suppose the Market for Loanable Funds Is Described by the Equations