Which of the following is an identity that always holds in an open economy?
A) NCO + C = NX
B) NCO = NX
C) NX - NCO = C
D) NX + NCO = Y

Question

Quizplus · Accepted Answer

In an open economy, the equation NCO = NX always holds, where NCO represents net capital outflow and NX represents net exports. This is because any excess of domestic savings over domestic investment must be reflected in net lending to foreign countries (NCO), which in turn equals the net inflow of foreign savings, which is shown as net exports (NX). Therefore, NCO and NX are always equal in an open economy.

Which of the Following Is an Identity That Always Holds