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

Question

Quizplus · Accepted Answer

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

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