The rapid increase of capital inflow has the potential to harm the economy.

Question

Quizplus · Accepted Answer

A rapid increase in capital inflow can lead to an appreciation of the domestic currency, making the country's exports more expensive and less competitive. This can lead to a decrease in exports, which can harm the economy. It can also lead to asset bubbles, as the excess capital can be invested in real estate and other assets, resulting in a price increase that may not be sustainable. Additionally, sudden capital outflows can result in a currency crisis, as seen in various emerging economies in the past. Therefore, a rapid increase in capital inflow can have negative consequences for the economy.

The Rapid Increase of Capital Inflow Has the Potential to Harm