Suppose that real interest rates decrease across Europe. This development will U.S. net capital outflow at all U.S. real interest rates, which in turn will cause the loanable funds to because net capital outflow is a component of the relevant curve in the loanable funds market.

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24-12-2019
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Suppose that real interest rates decrease across Europe. This development will U.S. net capital outflow at all U.S. real interest rates, which in turn will cause the loanable funds to because net capital outflow is a component of the relevant curve in the loanable funds market.

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olarewajuolalekansam olarewajuolalekansam · Answer 1 · 2019-12-28T05:26:34+01:00

Answer:

This development will INCREASE U.S. net capital outflow at all U.S. real interest rates.

This causes the DEMAND for loanable funds to INCREASE because net capital outflow is a component of that curve.

Explanation:

Net Capital Outflow is the net flow of funds being invested abroad by a country over a certain period of time, which is usually one year. For instance, when the net capital outflow is positive, domestic residents are buying more foreign assets than foreigners are purchasing domestic assets.

While when the net capital outflow is negative, the country is invested in more by foreigners than it invests in foreigners.

deebikamadhivanan deebikamadhivanan · Answer 2 · 2022-04-15T07:36:49+02:00

This development will boost net capital outflows, Because net capital outflow is a component of that curve, this increases the demand for loanable funds.

How do real interest rates increase in Europe?

Higher European real interest rates result in increasing net capital outflows from the United States because higher European real interest rates attract Americans to buy European assets while discouraging Europeans from buying U.S. assets.

The purchase of a capital asset increases the demand for loanable funds, whether the item is located at home (as a domestic investment) or overseas (as net capital outflow).

As a result of the rising real interest rates across Europe, the demand for loanable funds rises. The fill-ups of the three blanks are increase, demand, and increase respectively.

For more information about real interest rates, refer below

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