If national saving increases,________.(Assume that the capital account is zero and net transfers are zero.)
A)the sum of domestic investment and net exports must decrease
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 decrease to cover the gain

Question

Quizplus · Accepted Answer

National saving equals domestic investment plus net foreign investment. If national saving increases, either domestic investment or net foreign investment must increase as well (or both could increase). Since the capital account is zero, net transfers cannot affect the answer. Therefore, option B is correct.

If National Saving Increases,________