232,970 views
23 votes
23 votes
In the 2008 global financial crisis, many investors considered the US economy a safe place to move their assets What is the predicted impact of this inflow of financial capital to the US, which is a large, open economy, on the US interest rate and the US exchange rate, holding other factors constant Illustrate your answer graphically and explain in words.

User Rene Terstegen
by
2.4k points

2 Answers

20 votes
20 votes

Final answer:

The inflow of financial capital to the US during the 2008 crisis would decrease interest rates due to increased supply of capital, and appreciate the US exchange rate due to higher demand for US dollars.

Step-by-step explanation:

In the 2008 global financial crisis, an inflow of financial capital into the US economy would likely lead to a decrease in US interest rates and an appreciation of the US exchange rate. An increase in the supply of capital in the US financial system means that borrowers have more funds available, thus lowering the cost of borrowing, which is reflected in lower interest rates. Meanwhile, the higher demand for US dollars to invest in the US assets would cause the value of the dollar to increase in the foreign exchange markets, resulting in a stronger exchange rate.

Graphically, the supply curve for financial capital would shift to the right, leading to a lower equilibrium interest rate. In the foreign exchange market, the demand curve for US dollars would shift to the right, causing the dollar to appreciate. However, it's important to note that these are ceteris paribus assumptions, meaning they don't take into account other variables that might change and affect these outcomes.

User RecursiveThinking
by
3.1k points
23 votes
23 votes

Answer:

Good for US interest rate and the US exchange rate.

Step-by-step explanation:

The predicted impact of this inflow of financial capital to the United states of America is good for the economy as well as for US interest rate and the US exchange rate when the movement of assets occur to the United states of America. The economy of the United states of America gets to be better due to this action of investors. This 2008 global financial crisis greatly damaged the economy of United states of America so this action bring some betterment in the economy.

User AtErik
by
3.2k points