Over the past decade, some of Chinese saving has been used to finance American investment. That is, the Chinese have been buying American capital assets.

a. If the Chinese decided they no longer wanted to buy U.S. assets, what would happen in the U.S. market for loanable funds? In particular, what would happen to U.S. interest rates, U.S. saving, and U.S. investment?

b. What would happen in the market for foreign-currency exchange? In particular, what would happen to the value of the dollar and the U.S. trade balance?