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International investors pulled their funds out of Asia and moved them into mostly the United States. Using the large open economy model that we learned in class, analyze the impact of this policy on U.S. interest rates, real exchange rate, and trade balance.

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ecadrobe

Answer:

Policy impact will be positive

Explanation:

When investors pull out their funds from Asian, it will amount to scarcity of funds for developmental purposes. The contrary is the case when such funds are plunged into the US market. Its impact to the economy include:

1. Create more opportunity for development

2. Reduces the interest rate of lending in the society

3. Exchange rate value will decrease just because more of these funds will be used for business transactions

4. The prices of goods will be adjusted to balance the different caused by inflation

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