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Exchange Rates and Elasticity

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Suppose that Americans decide to increase their saving.
a.If the elasticity of U.S. net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on U.S. domestic investment?

b.If the elasticity of U.S. exports with respect to the real exchange rate is very low, will this increase in private saving have a large or small effect on the U.S. real exchange rate?

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This solution provides a detailed explanation of the given economics questions regarding exchange rate effects.

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a. If the elasticity of U.S. net capital outflow with respect to the real interest rate is very high, the lower real
interest rate that occurs because of the ...

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Edwin Sinclar, MBA
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  • MBA, Aspen University
  • Bachelor of Science , Berea College
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