Suppose we have an economy for which G = 1100,T = 800,S = 230,and I = 230.If I falls to 150,the economy's trade deficit

Question

Quizplus · Accepted Answer

To calculate the trade deficit, we use the formula: Trade deficit = Imports - Exports. 
In this case, we don't know the value of exports, so we can use the formula: 
Savings = Investments + Trade deficit

Initially, Savings = S = 230, Investments = I = 230, Taxes = T = 800, and Government spending = G = 1100. 
So, 
S = I + (T-G) + Trade deficit 
230 = 230 + (800-1100) + Trade deficit 
Trade deficit = 230 - 300 = -70

Now, if Investment falls to 150, Savings and Taxes remain the same, so we have: 
S = I + (T - G) + Trade deficit 
230 = 150 + (800-1100) + Trade deficit 
Trade deficit = 230 - 250 = -20

So, the trade deficit decreases from 300 to 220. 
Therefore, the correct answer is B.

Suppose We Have an Economy for Which G = 1100,T