In a closed economy S = I, so in an open economy:
A) S = I − NX.
B) S = I + NX.
C) S + I = NX.
D) S + NX = I.

Question

Quizplus · Accepted Answer

In an open economy, the national income (I) may not necessarily equal the domestic saving (S) because there may be inflows and outflows of goods and services due to international trade. Therefore, the equation S = I does not hold in an open economy. Instead, the correct equation is S = I + NX, where NX represents net exports (exports minus imports). This means that the domestic saving (S) equals the sum of domestic investment (I) and net exports (NX).

In a Closed Economy S = I, So in an Open