Question

In the open-economy macroeconomic model, if the supply of loanable funds shifts right
a. the interest rate falls and the supply of dollars in the market for foreign-currency exchange shifts right.
b. the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts left.
c. the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts right.
d. the interest rate falls and the supply of dollars in the market for foreign currency exchange shifts left.

Answer 1

In the open-economy macroeconomic model, if the supply of loanable funds shifts right the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts right.

C) The interest rate rises and the demand for dollars in the market for foreign currency exchange shifts right.

Explanation:

The supply of loanable funds shifts rights when people desire to save more even at an increasing interest rate. and the curve will shift left if the people do not want to save more even at a decreasing interest rate.

Therefore, here also the supply curve of loanable funds shifts right the interest rate rises and the demand for dollars in the market for foreign exchange shifts right.