Question

In a period of trade deficit, what would happen if domestic investment falls by $10 billion, private savings increases by $15 billion, and public savings decreases by $5 billion?

Select the correct answer below:

the trade deficit will remain unchanged

the trade deficit will decrease

there will be a trade surplus

the trade deficit will increase

Answer 1

Trade deficit = Investment - public saving - private saving

= (-10) - (-5) - (+15)

= -10 + 5 - 15

= - 20

Hence trade deficit decreases by 20 million

select the trade deficit will decrease