Chapter 32

I would give this chapter a 1.5 out of 3. This chapter talked about a new market, the foreign currency exchange market. We learned before that the loanable funds market is saving=domestic investment + net capital outflow. We learn that interest rates can have a big affect on this market because of the principles of supply and demand. The difference is that many variables in this chapter affect more than just one market. If you want to get foreign goods then someone is going to have to change your money into that foreign currency, which increases supply in the foreign currency market and increases demand for that foreign currency. The real exchange rate is what balances this market. Net capital outflow doesn't depend on the real exchange rate because the people who invest will eventually turn their investment back to their own currency at the same lower valued amount.