Question

A large country imposes capital controls that prohibit foreign borrowing and lending by domestic residents. The country is currently running a financial account surplus. The imposition of the capital controls will cause _______.

Answer 1

Answer:

A large country imposes capital controls that prohibit foreign borrowing and lending by domestic residents. The country is currently running a financial account surplus. The imposition of the capital controls will cause "desired national saving to fall".

Explanation:

Capital controls are resident status-based initiatives like transaction taxes, other constraints, or outright restrictions that can be used by a nation's government to regulate streams from capital markets to and from the capital account of the country.

It safeguards greatly reducing capital flows although efficiency differs across economies and investment kinds. Capital controls however tend to lower the risk of severe episodes. Capital inflow restrictions minimize the proportion of national loans priced in foreign currency.