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Assume the emergence of the coronavirus creates a permanent increase in the perceived risk of saving...

Assume the emergence of the coronavirus creates a permanent increase in the perceived risk of saving in China. Using the small open economy model, what is the impact on:

1. China' net capital outflows? Explain.

2. The real value of China's currency in the foreign exchange market? Explain.

3. Domestic investment in China? Explain.

4. Economic growth in China? Explain.

5. How will your answers differ if you use a large open economy model instead?

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Answer #1

Due to emergence of corona viruse the following impact will be on Chinese economy

1- Capital outflow will fall because there would be no trade between countries after resuming the trade their would see fall in capital outflow countries will avoid to Chinese investment due to their policy as he did with Sri Lanka so capital outflow will be less.

2- the real value of Chinese currency will fall due to less export of goods

3- domestic investment in china will fall due to covid.

4- Economic growth of china will fall as whole world is going through it. Chinese economy wiill also see decline in growth rate.

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