Question

What effect do you think the collapse of the U.S. housing bubble in 2008, and the ensuing Great Recession, had on international capital flows into the United States?

Short answer

The fall in interest rate led to the fall in international capital flows into the United States.

Step-by-step solution

Explanation

The U.S. economy collapsed due to the housing bubble, which lead to a drastic fall in interest rate as the economy was deeply depressed. The fall in aggregate demand and income reduced the investment demand which decreased the interest rates. The reduced interest rate discouraged foreign investors and hencethe international inflow of capital dried as investors shifted to other profitable destinations offering higher interest rates.