Question

In: Economics

For an economy, if its national saving is greater than its domestic investment, then which of...

For an economy, if its national saving is greater than its domestic investment, then which of the
following is true?
A) this economy must have a current account surplus.
B) this economy must have a financial account surplus.
C) this economy’s government budget must be in surplus.
D) all of the above

If an economy’s current account is in deficit, then it is true that __________.
A) its national saving finances the purchase of domestic goods by foreign countries
B) its national saving exceeds its domestic investment
C) this economy lends to foreign countries
D) this economy has a net capital outflow

Which of the following is true?
A) A current account deficit occur when domestic investment is greater than national savings.
B) Loans from abroad add to a country’s stock of external debt and generate debt service.
C) All countries have external debts in the world.
D) all of the above.

Solutions

Expert Solution

Option A is correct. when National savings is greater than domestic investment it indicates that there is a net capital outflow and net exports are positive. This results in a trade surplus and a simultaneous current account surplus

Option A is correct. there is a negative balance in the current account indicating that net exports are negative or there is a net capital inflow. In such a case the economy will be a net borrower and not a net lender

Option A is correct. when investment is greater than savings we have a net capital inflow or net exports which are negative indicating that there is a trade deficit.


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