-Using the data in the above table, if the private sector runs a surplus of $250 billion, imports will equal $1,000 billion if
A) government expenditure equals -$750 billion.
B) investment equals -$1,000 billion.
C) government expenditure equals -$1,000 billion.
D) the government sector runs a deficit of $750 billion.

Question

-Using the data in the above table, if the private sector runs a surplus of $250 billion, imports will equal $1,000 billion if
A) government expenditure equals -$750 billion. 
B) investment equals -$1,000 billion. 
C) government expenditure equals -$1,000 billion. 
D) the government sector runs a deficit of $750 billion.

Quizplus · Accepted Answer

In an open economy, the national income identity is given by Y = C + I + G + (X - M), where Y is national income, C is consumption, I is investment, G is government expenditure, X is exports, and M is imports. A private sector surplus implies that savings exceed private investment, so the surplus amount can be seen as S - I = $250 billion. If the government runs a deficit, it means its spending (G) exceeds its revenue, and this deficit must be financed by borrowing, which in this context, can be seen as the negative of the private sector surplus when considering the external sector's balance. Therefore, if the government sector runs a deficit of $750 billion, it complements the private sector surplus to finance the import excess over exports, leading to the condition where imports can equal $1,000 billion, assuming exports are negligible or zero for simplicity.

-Using the Data in the Above Table, If the Private