Imf warning over slowing growththe global economy may face

Reference no: EM13372442

IMF Warning over Slowing Growth

The global economy may face a marked slowdown next year as a result of the turmoil in financial markets, the International Monetary Fund has warned. The IMF said the global credit squeeze would test the ability of the economy to continue expanding at recent rates. While future economic stability could not be taken for granted, there was plenty of evidence that the global economy remained durable, it added.

Assets		Liabilities
(millions of dollars)
Reserves at RBA	25	Current deposits	90
Cash in vault	15	Saving deposits	110
Securities	60
Loans	100

(a) Explain how turmoil in global financial markets might affect the demand for loanable funds, investment, and global economic growth in the future.

Bernanke's Asian Savings Glut Theory Blasted

U.S. Federal Reserve chairman Ben Bernanke says that high saving rates in Asia (that he called a "glut of savings") were to blame for the extraordinarily low bond rates during the first half of the "noughties", as well as U.S. soaring house prices and current account deficit. Claudio Borio, research director at the Bank for International Settlements, says Bernanke is wrong and excessive lending by financial institutions caused low interest rates.

(b) Graphically illustrate and explain the impact of the "glut of savings" on the real interest rate and the quantity of loanable funds.

Reference no: EM13372442

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