Answer to Question #150322 in Macroeconomics for Lauren

Question #150322

The Real GDP of the U.S. rises relative to the GDP of India, increasing income in America
What happens to capital flows in this scenario, due to the change in value of its currency?
Graphically illustrate the change in the loanable funds market for the U.S. given the information gathered in question A. Be sure to label your graph.
What impact did this have on domestic real interest rate?

Expert's answer

Capital flows to U.S. will increase due to the increase in value of its currency.

The supply of loanable funds market of the U.S. will increase.

As a result the domestic real interest rate will decrease.