QUESTION “Some worry that the recent increase in the stock market index would discourage household savings and deteriorate the current account.” True/False/Uncertain, explain with the support ofONE...

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True, it has been found that there is negative relation between the household savings and the
stock market index, that is, when there is rise in the index of stock market, there are fewer
household savings. It is basically due to the life cycle hypothesis of Modigliani behaviour of
consumption. The rise in stock market is considered to be temporary and it is generally
financed through foreign borrowings and by rise in the consumption level of the individuals
which in turn reduces the savings of the households at macro level.
In fact, there is close relationship between the index growth of stock market and that of
foreign borrowings in an economy. This is...