All Flashcards
Differentiate between inbound and outbound capital flows.
Inbound: Foreigners buy domestic assets. Outbound: Domestics buy foreign assets.
How do nominal and real interest rates differ?
Nominal is the stated rate; real is adjusted for inflation.
What is the difference between the short-run and long-run effects of capital flows on aggregate supply?
Capital flows do not affect the long-run aggregate supply (LRAS).
How do capital inflows and capital outflows affect a country's currency value?
Inflows appreciate the currency; outflows depreciate it.
How do higher interest rates affect borrowers and lenders?
Higher interest rates benefit lenders and hurt borrowers.
How do lower interest rates affect borrowers and lenders?
Lower interest rates benefit borrowers and hurt lenders.
What is the difference between exports and imports?
Exports are goods and services sold to foreign countries; imports are goods and services bought from foreign countries.
How do capital flows affect the demand for domestic vs. foreign currency?
Capital inflows increase demand for domestic currency; capital outflows increase demand for foreign currency.
What is the difference between a trade surplus and a trade deficit?
A trade surplus occurs when exports exceed imports; a trade deficit occurs when imports exceed exports.
How do capital flows relate to net exports?
Capital flows influence exchange rates, which in turn affect net exports.
How does higher real interest rates in the US affect Japanese investors?
Attracts them to buy US Treasury bonds for better returns.
How do lower real interest rates in the US affect American investors?
Pushes them to seek higher returns abroad, like buying German bonds.
How does a significant outflow of capital affect the domestic loanable funds market?
Decreases the supply of loanable funds.
How does a higher real interest rate in the US compared to Canada affect capital flow?
Leads to an inflow of capital from Canada to the United States.
What happens to the value of the U.S. dollar relative to the euro if the real interest rate in the U.S. is higher?
The U.S. dollar will appreciate relative to the euro.
How does the appreciation of the U.S. dollar affect U.S. net exports?
Net exports of the United States will decrease.
How does an increase in demand for a country's currency affect its exports?
An increase in demand for a country's currency makes its exports more expensive.
How does an increase in demand for a country's currency affect its imports?
An increase in demand for a country's currency makes its imports cheaper.
If interest rates are higher in Japan than in the U.S., what do American investors do?
American investors want to buy Japanese assets.
If interest rates are higher in Japan than in the U.S., what happens to demand for the Japanese Yen?
They increase their demand for the Japanese Yen to do so.
What is the impact of a higher real interest rate on capital inflows?
Increases capital inflows.
What is the impact of a lower real interest rate on capital outflows?
Increases capital outflows.
What is the impact of capital inflows on the value of a country's currency?
Appreciates the currency.
What is the impact of capital outflows on the value of a country's currency?
Depreciates the currency.
How does a higher real interest rate affect investment in the long run?
A higher real interest rate does not affect long-run aggregate supply (LRAS).
What is the impact of an appreciated currency on a country's exports?
Decreases exports.
What is the impact of an appreciated currency on a country's imports?
Increases imports.
How does a real interest rate increase affect the supply of loanable funds?
Increases the supply of loanable funds.
How does a real interest rate decrease affect the supply of loanable funds?
Decreases the supply of loanable funds.
What is the impact of a decrease in net exports on aggregate demand?
Decreases aggregate demand.