If domestic saving is less than domestic investment, then a country will have a ________ and positive net capital ________.
A)trade deficit; outflows
B)trade deficit; inflows
C)trade balance; inflows
D)trade surplus; outflows

Question

Quizplus · Accepted Answer

If domestic savings is less than domestic investment then capital inflows are positive. This follows from the equation S + KI = I. Since KI is positive, NX must be negative (there must be a trade deficit), as is shown by the equation NX + KI = 0.

If Domestic Saving Is Less Than Domestic Investment, Then a Country