Question

With the economic uncertainty and job insecurity due to the COVID-19 crisis, many consumers may increase their saving as a precautionary measure. Explain in detail the predicted long-run impact of an increase in national saving on the domestic interest rate, net capital outflow, supply and demand of domestic currency and exchange rate in a large open economy, holding other factors constant. Explain your answer clearly in words. Do not provide diagrams. (125 words maximum)

Answer 1

ANSWER :-

☆ On the off chance  that the national savings increment the economic development  will be more slow since expanded savings suggests scaled down spending.

●However over the long run as national saving  increment the domestic interest rate will fall as the interest for budgetary market devices increment and an expansion in costs of the money related resources will prompt fall in the yield or interest rates , venture will ascend as the expense of getting falls.

●As the domestic interest rate falls the capital inflow will diminish contrasted with capital outflow as a rrsult the net capital outflow  will be sure.

●Interest for domestic cash take a jump and gracefully will be higher thus there can thankfulness in the cash and the exchange rate  will fall.

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