If national investment is equal to national savings, then the current account:[Hint: see page 12-13 of lecture 5B]Group of answer choicesNot enough information is provided to answer the question.must be positive.must be negative.must be zero.
Question
If national investment is equal to national savings, then the current account:[Hint: see page 12-13 of lecture 5B]Group of answer choicesNot enough information is provided to answer the question.must be positive.must be negative.must be zero.
Solution
The answer is: must be zero.
Here's why:
The current account is a measure of a country's trade where the value of goods and services it exports is compared to the value of goods and services it imports. In an economy, if national investment is equal to national savings, it means that all of the country's investment is funded by its own national savings.
There is no surplus savings that needs to be invested abroad (which would lead to a current account surplus, or a positive current account), and there is no shortfall of savings that needs to be funded by foreign investment (which would lead to a current account deficit, or a negative current account).
Therefore, in this case, the current account must be zero.
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