Question

What is the effect of recent pandemic crisis on real rental rate of capital? Explain

Answer 1

• As capital flees emerging markets, those countries are absorbing the most potent economic shocks of the coronavirus outbreak.
• As the coronavirus pandemic brings the global economy to an astonishing halt, the world’s most vulnerable countries are suffering intensifying harm. Businesses faced with the disappearance of sales are laying off workers. Households short of income are skimping on food. International investment is fleeing so-called emerging markets at a pace not seen since the global financial crisis of 2008, diminishing the value of currencies and forcing people to pay more for imported goods like food and fuel.
• It is also a threat to global fortunes. Emerging markets account for 60 percent of the world economy on the basis of purchasing power, according to the International Monetary Fund. A slowdown in developing countries is a slowdown for the planet.
• Most economists assume that a worldwide recession is already underway — a synchronized downturn that is punishing countries indiscriminately, turning traditional economic strengths into alarming vulnerabilities.
• Right now the companies are slowing down in their business, most of them are surviving on their savings which means they are taking out the capital amount, All the governments whether they are of developing economies or it is of a developed economy are pumping flow from their reserves. As we know that the price of capital is the rental rate.
• Hence rental rate of capital will be decreased.