If private saving equals private investment and there is a trade deficit, there must be a(n) ________; this is called ________.

Question

Quizplus · Accepted Answer

When private saving equals private investment and there is a trade deficit, it implies that the country is spending more on imports than it is earning from exports. To finance this trade deficit, there must be a government budget deficit or borrowing from abroad. This situation is referred to as the "twin deficits" hypothesis, which links a government budget deficit with a trade deficit.

If Private Saving Equals Private Investment and There Is a Trade