In 2014, The Russian Federation intervened militarily in the Ukrainian Crimean P
ID: 1151353 • Letter: I
Question
In 2014, The Russian Federation intervened militarily in the Ukrainian Crimean Peninsula, eventually annexing the region after a short but violent conflict. The interantional political community almost immediately announced sanctions on Russia, rasing fears of economic and political instability. With what we know about the loanable funds market of open economies, what change would you predict for prevailing interest rates in Russia? Does this effect the supply curve, or demand curve? Which direction does the curve shift?
What (smaller) effect might this situation have on the trade balances of politically "safe" economies in nearby Europe and Asia? Explain concisely.
Explanation / Answer
Interest rates will rise because supply curve of loanable funds will shift LEFTWARDS. Investors will fear investing in Russia given political instability and likely sanctions
The small effect on safe economies will be flow of funds from Russian economy to these countries. These countries will experience surpluses and/or reduction in defecit
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.