What is happening to financial flows why

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Use the classical IS-LM model for two countries to analyze the idea that the United States is a safe haven for investment by foreigners in a global financial crisis. Assume that because of a financial crisis, the expected future marginal product of capital falls in foreign countries. Because the United States is a safe haven that is unaffected by the financial crisis, the expected marginal product of U.S. capital rises. Show how this situation would lead to an appreciation of the U.S. real exchange rate and a drop in U.S. net exports. Assume no change in current productivity or current labor supply in either country. What is happening to financial flows? Why?

Reference no: EM131131285

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