Asked by Alanis Matthews on May 09, 2024
Verified
For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that
A) S = I.
B) S = 0.
C) I = S + NX.
D) S = I + NX.
Open Economy
An economy that engages in international trade, allowing goods, services, and capital to move freely across its borders.
National Saving
National saving is the sum of private and public savings in an economy, essentially the portion of national income that is not spent on consumption or government expenditure.
Consumption
The use of goods and services by households. It includes spending on durable goods, nondurable goods, and services.
- Discern the factors that contribute to private and public saving within the frameworks of closed and open economies.
Verified Answer
TF
TheCaliforniassDreamers FamilyMay 14, 2024
Final Answer :
D
Explanation :
National saving (S) in an open economy is defined as the total income (Y) minus consumption (C) and government purchases (G), which gives us S = Y - C - G. The equation for an open economy is Y = C + I + G + NX. Rearranging this equation to solve for I gives us I = Y - C - G - NX, which is equivalent to I = S - NX. Therefore, rearranging for S gives us S = I + NX, which matches option D.
Learning Objectives
- Discern the factors that contribute to private and public saving within the frameworks of closed and open economies.