If national saving decreases
A)the sum of domestic investment and net exports must increase.
B)the sum of domestic investment and net foreign investment must increase.
C)the sum of domestic investment and net foreign investment must decrease.
D)net foreign investment must increase to cover the loss.

Question

Quizplus · Accepted Answer

National saving is equal to the sum of domestic investment and net foreign investment. If national saving decreases, it means that the sum of domestic investment and net foreign investment must also decrease correspondingly. Option A is incorrect because it assumes that net exports will increase, which may not always be the case. Option B is also incorrect because it assumes that net foreign investment will increase, which is not possible if national saving is decreasing. Option D is incorrect because it assumes that net foreign investment will cover the loss, which is not possible if national saving is decreasing.

If National Saving Decreases