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Macroeconomics Assignment

1. What is loanable funds theory?

2. What is the demand and supply of loanable funds?

3. What is the effect of fiscal (monetary) policy and investment demand on the trade balance?

4. What is the Mundell-Fleming Model (MFM)?

5. What is the link between MFM and open (closed) economies?

6. What is the link between MFM and fiscal (monetary) policies?

7. What is the link between MFM and fixed (floating) exchange rates?

8. What is the link between fiscal (monetary) policies and fixed (floating) exchange rates?

9. What is the link between fixed (floating) exchange rates and trade policies?

10. What is the link between open (closed) economies, fiscal (monetary) policies, and fixed (floating) exchange rates?



Answer :

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Final answer:

The loanable funds theory explains how interest rates are determined by the interaction of loan demand and supply. Fiscal and monetary policies, along with investment demand, can affect a country's trade balance by influencing exchange rates and economic activity.


Explanation:

Loanable Funds Theory: This theory posits that the interest rate is determined by the intersection of the demand for and the supply of loanable funds in the financial market.

Demand and Supply of Loanable Funds: The demand for loanable funds comes from households, firms, and governments seeking to borrow money, while the supply comes from savers willing to lend their funds.

Effect of Fiscal (Monetary) Policy and Investment Demand on Trade Balance: Fiscal and monetary policies, along with changes in investment demand, can influence the trade balance of a country by impacting its exchange rates and overall economic activity.


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