Question

When a government records a trade surplus, the national savings and investment identity is written as:

A. s = (g - t) (x - m) - is=(g−t)(x−m)−i
B. s - (g - t) = i - (x - m)s−(g−t)=i−(x−m)
C. s = i (g - t) (x - m)s=i(g−t)(x−m)
D. s (g - t) = i - (x - m)s(g−t)=i−(x−m)

Answer 1

The correct expression of the national savings and investment identity when a government records a trade surplus is B. s - (g - t) = i - (x - m).

Step-by-step explanation:

When a government records a trade surplus, the national savings and investment identity is expressed as trade surplus = private domestic saving + public saving - domestic investment. This can be formulated as:

(X-M) = S + (T - G) - I

Where X represents exports, M represents imports, S is private domestic savings, T is tax revenues, G is government spending, and I is domestic investment. With a trade surplus, more capital is being saved domestically than is being invested, so additional capital is invested abroad. Therefore, the correct formula that represents this scenario is B. s - (g - t) = i - (x - m).