Saving-Investment Diagram
-Based on the Saving-Investment Diagram,if the difference between values G and E measures the net capital outflow,then ________.
A)the difference between values G and E measures the trade surplus
B)the difference between values H and D measures the trade surplus
C)the domestic real interest rate is indicated by B
D)desired saving has decreased
E)none of the above

Question

Saving-Investment Diagram 
-Based on the Saving-Investment Diagram,if the difference between values G and E measures the net capital outflow,then ________.
A)the difference between values G and E measures the trade surplus 
B)the difference between values H and D measures the trade surplus 
C)the domestic real interest rate is indicated by B 
D)desired saving has decreased 
E)none of the above

Quizplus · Accepted Answer

The net capital outflow is the difference between domestic saving and domestic investment. In the Saving-Investment Diagram, the value of G represents domestic investment while the value of E represents domestic saving. Therefore, the difference between values G and E measures the net capital outflow. This is because if domestic saving is greater than domestic investment, then the excess saving will flow abroad as a capital outflow. This is also known as a trade surplus, which is represented by the difference between values G and E. Option A correctly identifies the relationship between the net capital outflow and the trade surplus. Option B is incorrect as the difference between values H and D does not relate to the trade surplus. Option C is also incorrect as the domestic real interest rate is indicated by point C, not point B. Option D is also incorrect as there is no information to suggest that desired saving has decreased.

Saving-Investment Diagram -Based on the Saving-Investment Diagram,if the Difference Between Values G