In goods market equilibrium in an open economy,
A)the desired amount of exports must equal the desired amount of imports.
B)the desired amount of exports must equal the desired amount of imports less the amount lent abroad.
C)the desired amount of national saving must equal the desired amount of domestic investment.
D)the desired amount of national saving must equal the desired amount of domestic investment plus the current account balance.

Question

Quizplus · Accepted Answer

Goods market equilibrium in an open economy is achieved when the desired amount of national saving equals the desired amount of domestic investment plus the current account balance. This is because national saving can either be used for domestic investment or lent abroad to finance a current account deficit, which represents the excess of imports over exports. Therefore, D is the correct choice. options A and B are incorrect because they only consider the balance of trade and do not take into account the role of national saving and domestic investment. Option C is incorrect because it does not consider the current account balance.

In Goods Market Equilibrium in an Open Economy