Which of the following does a trade deficit imply? A)saving is greater than domestic investment and Y C + I + G B)saving is greater than domestic investment and Y C + I + G D)saving is less than domestic investment and Y

Question

Which of the following does a trade deficit imply? A)saving is greater than domestic investment and Y > C + I + G B)saving is greater than domestic investment and Y < C + I + G C)saving is less than domestic investment and Y > C + I + G D)saving is less than domestic investment and Y < C + I + G

Quizplus · Accepted Answer

A trade deficit implies that a country is importing more than it is exporting, meaning that there is more spending on goods and services from other countries (C + I + G + NX), compared to the production and income generated domestically (Y). This can only occur if national saving is less than domestic investment (I) and/or if the government is running a budget deficit (G > T). Therefore, option D is the correct answer.

Which of the Following Does a Trade Deficit Imply