Excel Answer Sheet for Economics 210

Excel Answer Sheet for Economics 210

To Accompany Excel Workbook: 30_Open_Economy.xls

Refer to the Above Excel Workbook in answering the questions below. For each spreadsheet in the workbook, a spreadsheet title and a brief description of the spreadsheet precede one or more questions based on that spreadsheet. Bold letters indicate the spreadsheet name.

Loanable Funds: Short Description of Worksheet.

1. Shift the demand curve for loanable funds to the left, using the scroll bar. (Reducing the intercept shifts the curve down and to the left—demand is reduced.) Trace the effects of the shift on the market for loanable funds, equilibrium quantity of loanable funds, and equilibrium interest rate.

A leftward shift in the demand for loanable funds might be due to a decrease in the expected future returns to investments in physical or human capital. What might cause such a shift?

2.Shift the supply curve for loanable funds to the left, using the scroll bar. (Increasing the intercept shifts the supply curve upward and to the left—supply is reduced.) Trace the effects of the shift on the market for loanable funds, equilibrium quantity of loanable funds, and equilibrium interest rate.

A leftward shift in the supply for loanable funds might be due to a decrease in the amount households choose to save at each interest rate. What might cause such a shift?

Foreign Exchange 1: Short Description of Worksheet.

3.Shift the demand curve for funds to be exchanged for yen to the left, using the scroll bar. Trace the effects of this change on the equilibrium quantity of dollars exchanged or yen and on the equilibrium exchange rate.

4.Shift the supply curve for funds to be exchanged for yen to the left, using the scroll bar. Trace the effects of this change on the equilibrium quantity of dollars exchanged or yen and on the equilibrium exchange rate.

Foreign Exchange 2: Short Description of Worksheet.

5.Refer to the text to answer this question. Why is the quantity demanded of net foreign investment (from this worksheet) equivalent to the supply of dollars in the foreign exchange market (in the preceding worksheet)?

All Together: Short Description of Worksheet.

6.Explain the relationships that connect the market for loanable funds to that for foreign exchange, via the demand for funds to finance net foreign investment. Illustrate your explanation by using two different loanable funds supply curves.

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