A nationʹs investment must be financed by
A) borrowing from the rest of the world only.
B) the governmentʹs budget deficit.
C) national saving plus borrowing from the rest of the world.
D) national saving only.

Question

Quizplus · Accepted Answer

Investment can be financed by a combination of national saving and borrowing from the rest of the world. National saving includes both public and private saving. If a nation's saving is not enough to finance its investment, it can borrow from the rest of the world. Option A is incorrect because borrowing from the rest of the world alone may lead to debt accumulation and financial vulnerability. Option B is incorrect because financing investment by government budget deficit may lead to inflation and crowding out of private investment. Option D is incorrect because if a nation relies only on national saving to finance investment, it may not have enough funds and may miss out on profitable investment opportunities.

A Nationʹs Investment Must Be Financed by