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AP Macroeconomics

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Japan, the European Union, Canada, and Mexico have flexible exchange rates.

Suppose Japan attracts an increased amount of investment from the European Union.

Using a correctly labeled graph of the loanable funds market in Japan, show the effect of the increase in foreign investment on the real interest rate in Japan.

MY QUESTION: My doesn't DEMAND shift right for Japan's foreign investment? (correct answer is that supply shifts right)

  • AP Macroeconomics - ,

    AD shifts right overall, but in the market for loanable funds the supply shifts right, because at any given interest rate, there will be more loanable funds available

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