If we take into account transfer payments (TR)when we derive the saving and investment relationship,the saving and investment equation becomes
A)S = I + NFI.
B)S + TR = I + NFI.
C)S = I + NFI + TR.
D)S = I + NX - TR.

Question

Quizplus · Accepted Answer

When we take transfer payments (TR) into account, the saving and investment equation becomes S + TR = I + NFI. This is because transfer payments are a portion of income that is not saved or invested but rather transferred to another party, so they have to be added to saving to get the total amount available for investment. The other choices either do not account for transfer payments or add in other factors like net exports (NX) that are not relevant to this equation.

If We Take into Account Transfer Payments (TR)when We Derive