A country has $60 million of domestic investment and net capital outflow of -$10 million. What is saving?
A) -$70 million
B) -$50 million
C) $50 million
D) $70 million

Question

Quizplus · Accepted Answer

According to the national income accounting identity, Y = C + I + G + NX, where Y is GDP, C is consumption, I is investment, G is government spending, and NX is net exports. This identity tells us that all output (Y) must be allocated to either consumption, investment, government spending, or net exports. Rearranging the equation, we get:

I = Y - C - G - NX

We know that I = $60 million and NX = -$10 million, so:

$60 million = Y - C - G - (-$10 million)
$60 million = Y - C - G + $10 million
$70 million = Y - C - G

We don't know the values of consumption (C) or government spending (G), but we do know that saving (S) is equal to:

S = Y - C - G

Substituting in the values we found above:

S = $70 million - C - G

So we cannot solve for S without knowing the values of C and G.

A Country Has $60 Million of Domestic Investment and Net