Question

1. List three costs to the society that results from the inflation

2. Giving reasons, explain what has happened to Kuwait's net export as the result of Coronavirus pandemic?

3. Giving reasons, explain what has happened to Kuwait's how net capital outflow as the result of Coronavirus pandemic?

4. What is the nature of the relationship between saving, domestic investment, and net capital outflow?

Answer 1

Hi,

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Question:

Answer:

List three costs to the society that results from the inflation.

There are three cost costs to the society that results from the inflation are following as:

1. Purchasing power: When inflation increase then depreciate the value of the domestic currency that decreased the purchasing power of the currency and vice-versa.

2. Real Income: Increasing inflation decrease the real income (inflation adjusted) and vice-versa.

3. Cost of borrowing: when inflation increase then central bank reduce the money supply that increase the interest rate and vice-versa.

Giving reasons, explain what has happened to Kuwait's net export as the result of Coronavirus pandemic?

Net Export = Total Export - Total Import.

When the total export is more than the total import the net export is positive and vice-versa.

As per the world bank report:

Kuwait is highly dependent on foreign trade, which represented 100% of the GDP (World Bank). As the fifth largest OPEC oil producer, Kuwait's exports earnings mainly come from oil (over 90% of total and accounting for almost 60% of the GDP).

This time the world is facing a COVID -19 crisis. All the economic activities, social activities and political activities are affected worst. Growth rate of the  major economic activities like, transportation, production, manufacturing, construction etc have declined sharply. The most affected industries are Tourism, Aviation, Hospitality, retail, manufacturing, construction, transportation etc. The big oil like USA, China, India, Italy, Spain, UK etc are the most Corona affected nations. So, it has decreased the consumption level of oil products globally. Reducing consumption has decreased the demand for the oil products. So, it will definitely affect the demand for import of the oil products and will reduce it so, it will decrease the export level of Kuwait. Decreasing export level will decreased the net export of Kuwait.

Giving reasons, explain what has happened to Kuwait's how net capital outflow as the result of Coronavirus pandemic?

Net Capital Outflow = Acquisition of foreign assets by residents – Acquisition of domestic assets by nonresidents

Because globally economy are facing a COVID-19 crisis. The reason of crisis is lower the level of aggregate demand (AD) in the economy. So, the countries are following expansionary fiscal and monetary policy to boosting the AD in the economy. When AD increase total output (GDP) and price level increase and vice-versa. When the central bank follow the expansionary monetary policy then the central bank increase money supply in the economy that decrease the interest rate. Decreasing interest rate make the economy less attractive for the foreign investors that decrease the foreign cashflow into the economy. Other side negative net export also increased the capital outflow compare to capital inflow. So, here, because the economy is facing problem and other side global economy is not favorable so it will make the net capital outflow negative.

What is the nature of the relationship between saving, domestic investment, and net capital outflow?

In a country total investment is equal to total saving. When the saving rate increase its also increase the investment level. Other side NOC (net capital outflow) is related to Acquisition of foreign assets by residents and Acquisition of domestic assets by nonresidents.

NCO = Acquisition of foreign assets by residents – Acquisition of domestic assets by nonresidents.

When the saving level increase then its also increase the investment level and increasing investment level increase the production level. Increase the production level make the supply side more strong of a country and promote and enhance export. Increasing Export level increase the capital inflow into the economy. Other side increasing saving also encourage to the domestic investors and the government to investment into the foreign countries that increase the acquisition of foreign assets by residents that increase the NCO level.

Thank You