Question

10. Which of the following statements is (are) correct?

(x) Net capital outflow is always less than net exports if the country has a trade deficit.

(y) If S = I + NCO, then I = S – NCO

z) If saving is greater than domestic investment, then NCO is greater than net exports.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (y) only

Answer 1

(x) Net Exports always equals net capital outflow as the value of net exports is the capital that has flown out of/into the economy. Statement (x) is incorrect.

(y) If S = I + NCO => I = S - NCO. Statement (y) is true

(z)As explained in (x), a country's net exports are always equal to its net capital outflow. Therefore, statement (z) is incorrect.

If savings is greater than domestic investment, then there is a positive NCO in the economy. (S = I + NCO)

Ans: E. (y) only