In a small open economy, if domestic saving equals $50 billion and domestic investment equals $50 billion, then there is ______ and net capital outflow equals ______.
A) a trade deficit; $100 billion
B) balanced trade; $0
C) a trade surplus; $100 billion
D) balanced trade; $100 billion

Question

Quizplus · Accepted Answer

When domestic saving equals domestic investment, it indicates that the economy is in a state of balanced trade. There is no net capital outflow in this scenario, so the correct answer is B: balanced trade; $0.

In a Small Open Economy, If Domestic Saving Equals $50