Question

If the value of a nation’s imports exceeds the value of its exports, which of the following is NOT true?
a. Net exports are negative.
b. GDP is less than the sum of consumption, investment, and government purchases.
c. Domestic investment is greater than national saving.
d. The nation is experiencing a net outflow of capital.

Answer 1

Answer-D the nation is experiencing a net capital outflow.

A. It is true

the net exports determine by substraction imports from exports. Value of imports is greater than exports result in net exports being negative.

B. It is right true.

GDP= C+I+G+NX

Where C-consumption, I-investment, G- Government spendings and NX- Net exports

If imports exceeds exports, it will lead to net exports being negative. If net exports are negative, it results in GDP less than the sum of consumption, investment and government purchases.

C- It is true.

If imports exceed exports then residents has to spend more on goods and services. It will lead to decrease in national saving. If national saving are less than capital demanded by businesses, investment from abroad will increase. Thus, the domestic investment is greater than national saving.

D- It is wrong

If an economy is running a trade deficit means imports surpass exports. It must back the net acquisition of goods and services by selling resources abroad. On the off chance that it's running a trade surplus means exports surpass imports, the overabundance in foreign currency it gets is being utilized to purchase resources from abroad. Hence, if imports exceed exports, it will cause net capital outflow negative or the nation is not experiencing capital outflow.