Which of the following is not a potential problem for emerging economies which liberalize their capital accounts to allow funds to flow in from developed countries?
A) Asymmetric information can cause funds to be directed into unprofitable sectors
B) A sudden withdrawal of foreign funds could create a recession
C) A weak banking sector can generate excessive risk taking as funds flow in
D) The inflows may be volatile and thus unpredictable
E) Investment could exceed the level of domestic saving

Question

Quizplus · Accepted Answer

All of the other options are potential problems that could arise from liberalizing the capital account, but investment exceeding the level of domestic saving is not a problem. In fact, it could be seen as a positive outcome, as it would increase investment and economic growth.

Which of the Following Is Not a Potential Problem for Emerging