Question

Explain whether the given statement is true, false or uncertain. Start your answer by selecting one...

Explain whether the given statement is true, false or uncertain. Start your answer by selecting one of the options – “True”, “False” or “Uncertain” and then provide arguments to justify your selection (be brief and concise and present your arguments in 100 or less words). You need to ensure your assumptions are clear, reasonable and explicit if making any.

Question:

The saving rate (gross domestic saving as a % of GDP) in Singapore, a small open economy, was 48% in 2017 while the investment rate (domestic investment as a % of GDP) was 25%. As a result, there was net outflow of capital from Singapore in 2017.

Homework Answers

Answer #1

Answer: True

The national income identity of a country can be written as,

S - I = NX, where, 'S' is domestic saving, 'I' is investment and, 'NX' is net exports.

The 'S - I' is the net capital outflow of a country. The net capital outflow occurs when domestic saving exceeds domestic investment. In this case, a country, after meeting its domestic investment, lends or invest the excess of its saving to foreign countries,

Here, we see that, the saving rate in Singapore was 48% in 2017 while the investment rate was 25%. So, in Singapore, the domestic saving exceeds the domestic investment in 2017. Hence, in Singapore, there was a net outflow of capital in 2017.

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