In an open economy where the net interest income abroad and net transfers are small and...

In an open economy where the net interest income abroad and net transfers are small and
neglected, net exports equals
A. government budget deficit plus private saving plus private investment.
B. public saving plus private debt minus private investment.
C. public saving minus private saving plus private investment.
D. public saving plus private saving minus private investment.

Expert Solution

We know that for an open economy, Y = C + I + G + (X - M)

Again, we also know that, Y = C + S + T

So, we can write,

C + S + T = C + I + G + (X - M)

or, S - I + (T - G) = (X - M)

Here, S = private savings, I = private investment and (T - G) = public savings or budget surplus and (X - M) = net exports

so, from the above equation, we can say that net exports for an open economy is equal to public saving plus private saving minus private investment.

Hence, option D is correct.

Rahul Sunny answered 2 years ago

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