An open economy whose national saving (S) exceeds its investment (I) experiences a trade surplus. True...

An open economy whose national saving (S) exceeds its investment (I) experiences a trade surplus. True or False?

Expert Solution

In open economy equilibrium point following holds.

S = I + NX

Where 'S' is the national saving

'I' is the investment

'NX' is net export.

S = I + NX

NX = S - I

If Saving (S) exceeds Investment (I), then S-I would be positive.

It means NX (Net export ) is positive.

Positive net export implies trade surplus (because export is higher than import if net export is positive)

Answer: TRUE

Rahul Sunny answered 2 years ago

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