Pretend for moment you are teaching this class and you need to write questions for an exam covering this chapter. Write three short answer questions and give 2 answers for each — an adequate response and a very good response. You questions should cover highlights from the chapter. Don’t choose identification or list questions, require some analysis. A answers are generally longish.
- What effects supply and demand in the market for lone-able founds?
All savers go to the market for loanable funds to deposit their saving, and all borrowers go to this market to get their loans. There is one interest rate, which is both the return to saving and the cost of borrowing. If the interest rate is really high, savers will want to deposit money and the supply will be high in the market for loanable founds. If the interest rate is really low, spenders will want to borrow money and the demand will be high in the market for loanable founds.
2. What is capital flight? When a country experiences capital flight, what is the effect on its interest rate and exchange rate?
Capital flight is a large and sudden movement of funds out of a country. Capital flight causes the interest rate to increase and the exchange rate to depreciate.
3. Why is international trade becoming more and more common and is this good for economies like the U.S.?
International economics is a topic increasing in popularity due to the increased ease accessibility to ship goods overseas. International economics is good for economies like the U.S. because it increases specialization and speeds up the rate of technological advancement.
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