Asked by Jessica Green on Jun 15, 2024
Verified
In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save equals desired quantities of domestic investment and net capital outflow.
Equilibrium Real Interest Rate
The interest rate at which the demand for investment equals the supply of savings in an economy, without any inflation being considered.
Domestic Investment
Expenditure on capital within a country that is intended to improve the economy's future production capacity, such as factories, machinery, and infrastructure development.
Net Capital Outflow
The difference between the domestic country's purchase of foreign assets and foreign investments in domestic assets over a certain period.
- Gain an understanding of the balance condition within the open-economy macroeconomics model and what it means for homegrown investment, outward capital movement, and net export levels.
Verified Answer
NS
Nurul SurfinaJun 19, 2024
Final Answer :
True
Explanation :
In the open-economy macroeconomic model, equilibrium is achieved at the real interest rate where the amount people (including the government) want to save exactly equals the sum of the desired quantities of domestic investment and net capital outflow. This balance ensures that the supply of loanable funds meets the demand for those funds both for domestic investment and for investment abroad.
Learning Objectives
- Gain an understanding of the balance condition within the open-economy macroeconomics model and what it means for homegrown investment, outward capital movement, and net export levels.