I have tried this problem before but I got the second half wrong, How do I shift the graph correctly? Now, suppose that Mexico experiences a sudden bout of political turmoil, which causes world financial markets to become uneasy. Because people now view Mexico as unstable, they decide to pull some of their assets out of Mexico and put them into more stable economies. This unexpected shock to the demand for assets in Mexico is known as capital flight.Shift the NCO curve to illustrate the effect of capital flight. Then, on the graph representing the market for loanable funds, shift the demand curve, the supply curve, or both to reflect the change caused by the shift in NCO.Determine the equilibrium interest rate after capital flight occurs, and enter it into the second row of the table. Then determine the level of NCO that occurs along the new NCO curve at the new equilibrium interest rate. The following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO)measured in terms of the Mexican currency, the peso.The Market for Loanable Funds in MexicoMexican Net Capital Outflow6.Supply331NCODemand-1-2-26 70 1 2 3 4 5LOANABLE FUNDS (Billions of pesos)1 2 3 4NET CAPITAL OUTFLOW (Billions of pesos)8.-4-3-2-16.REAL INTEREST RATE (Percent)REAL INTEREST RATE (Percent) Finally, show the effect of the change in NCO on the market for foreign exchange by shifting either the supply curve, the demand curve, or both.The Market for Foreign-Currency ExchangeSupplyDemandSupplyDemandQUANTITY OF PESOSSummarize the results of capital flight by completing the following table.Real Interest RateReal Exchange RateNet Capital OutflowEffects of capital flightREAL EXCHANGE RATE (Dollars per peso)

The equilibrium interest rate in an economy is determined by the demand and supply of loanable…

Answered: Now, suppose that Mexico experiences a…

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 6CQ

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I have tried this problem before but I got the second half wrong, How do I shift the graph correctly?

Now, suppose that Mexico experiences a sudden bout of political turmoil, which causes world financial markets to become uneasy. Because people now view Mexico as unstable, they decide to pull some of their assets out of Mexico and put them into more stable economies. This unexpected shock to the demand for assets in Mexico is known as capital flight.

Shift the NCO curve to illustrate the effect of capital flight. Then, on the graph representing the market for loanable funds, shift the demand curve, the supply curve, or both to reflect the change caused by the shift in NCO.
Determine the equilibrium interest rate after capital flight occurs, and enter it into the second row of the table. Then determine the level of NCO that occurs along the new NCO curve at the new equilibrium interest rate.

The following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO)
measured in terms of the Mexican currency, the peso.
The Market for Loanable Funds in Mexico
Mexican Net Capital Outflow
6.
Supply
3
3
1
NCO
Demand
-1
-2
-2
6 7
0 1 2 3 4 5
LOANABLE FUNDS (Billions of pesos)
1 2 3 4
NET CAPITAL OUTFLOW (Billions of pesos)
8.
-4
-3
-2
-1
6.
REAL INTEREST RATE (Percent)
REAL INTEREST RATE (Percent)

Finally, show the effect of the change in NCO on the market for foreign exchange by shifting either the supply curve, the demand curve, or both.
The Market for Foreign-Currency Exchange
Supply
Demand
Supply
Demand
QUANTITY OF PESOS
Summarize the results of capital flight by completing the following table.
Real Interest Rate
Real Exchange Rate
Net Capital Outflow
Effects of capital flight
REAL EXCHANGE RATE (Dollars per peso)

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