There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures. This relationship is given by BCA ≡ X - M ≡ (S - I) + (T - G). Given this, which of the following is a true statement?
A)If (S - I)

Question

There is an intimate relationship between a country's BCA and how the country finances its domestic investment and pays for government expenditures. This relationship is given by BCA ≡ X - M ≡ (S - I) + (T - G). Given this, which of the following is a true statement?
A)If (S - I) < 0, it implies that a country's domestic savings is insufficient to finance domestic investment.
B)If (T - G) < 0, it implies that a country's tax revenue is insufficient to finance government spending.
C)both a and b are true
D)none of the above

Quizplus · Accepted Answer

Option A is true because (S-I) represents the savings surplus/deficit, and if it is negative, it means that domestic savings are insufficient to finance domestic investment.
Option B is true because (T-G) represents the government's budget surplus/deficit, and if it is negative, it means that tax revenue is insufficient to finance government spending.

There Is an Intimate Relationship Between a Country's BCA and How