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Chapter 23: Q 26 (page 577)

What are the two main sides of the national savings

and investment identity?

Short Answer

Expert verified

Demand and supply of financial capital.

Step by step solution

01

Step1. Introduction 

The savings-investment identity is-

S + (M 鈥� X) = I + (G 鈥� T)

where,

S- Savings,

M- Imports,

X-Exports,

I- Investments,

G- Government Expenditure,

T- Taxes

02

Step2. Explanation 

The 2 main sides are supply and demand of financial capital.

savings include savings of household and business.

trade deficit leads to increased inflow of foreign capital hence it will comprise of supply.

Demand side includes- Investment, and the difference of government expenditure and taxation.

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Most popular questions from this chapter

State whether each of the following events involves a financial flow to the U.S. economy or away from the U.S. economy:

  1. Export sales to Germany
  2. Returns paid on past U.S. financial investments in Brazil
  3. Foreign aid from the U.S. government to Egypt
  4. Imported oil from the Russian Federation
  5. Japanese investors buying U.S. real estate

Why does the trade balance and the current account balance track so closely together over time?

When is a trade deficit likely to work out well for

an economy? When is it likely to work out poorly?

If countries reduced trade barriers, would the international flows of money increase?

The GDP for the United States is \(18,036 billion and its current account balance is 鈥揬)484 billion. What percent of GDP is the current account balance?
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