Question

please answer this question and explain

Instructions: Please type your answers and provide references when necessary. In late February 2020, Kuwait government took some early initiatives to control the Coronavirus pandemic. For Kuwait, the pandemic is considered to be a Double-Edged Sword, as the lower demand for oil has reduce the nation's income and has paralyzed the domestic economic activities. Despite government support, many companies continue to lay off workers, which may lead to further reduction of national income. 1. To support the domestic economic activities, Kuwait government requested the banks to freeze the collection of mortgage payments or loans installments for six months. Using graphs explain how this policy will impact Kuwait economy's loanable funds market, net capital outflow and foreign currency market.

please explain the answer and draw graphs

dont answer it, i found the answer, thanks

Answer 1

Freezing the collection of mortage payments or loan instalments for six months will increase the demand for loanable funds in the market because the level of investment expenditure will increase in the economy. In the loanable funds market, this can be depicted by the rightward shift of the demand curve for loanable funds. Thus, it leads to increase in the rate of interest in the loanable funds market.

у SLF Interest rate Rate of زد E ent Ple' DLF ANCO, LF, LE Loanable funds Ncol Net capital Out flow Y So S Real Exchant ge Rate E E. Remand Currency

This change in the loanable fund market will shift the Net Capital Outfloe curve rightwards in panel ii of the diagram. At the same time, increase in the level of Net Capital Outflow from the economy increases the supply of currency in foreign exchange market. This increase in the supply of currency will cause the currency to depreciate.