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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 – X) = I + (G – 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

Some economists warn that the persistent trade deficits and a negative current account balance that the United States has run will be a problem in the long run. Do you agree or not? Explain your answer.

In what way does comparing a country’s exports to GDP reflect its degree of globalization?

Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Explain why such a statement is economically impossible.

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What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?
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