Final answer:
In an open economy, when desired savings are equal to desired investment, the current account is related to savings and investment. A negative current account indicates a trade deficit, suggesting the country is using more foreign capital to meet its investment needs.
Step-by-step explanation:
In an open economy, if desired savings (S) is exactly equal to desired investment (I), then the national savings and investment identity indicates that the supply of financial capital must be equal to the demand for financial capital. This relationship is illustrated by the equation S + (M-X) + (T - G) = I, where S is private savings, T is taxes, G is government spending, M is imports, X is exports, and I is investment. When savings equals investment, it means the
current account (CA) would be zero if the government's budget is balanced and there is no trade deficit or surplus. However, in case of a negative CA, where (M-X) is positive, this implies the economy is importing more than it's exporting, resulting in a trade deficit. Such an economy would be utilizing more foreign capital to fund its investment. In contrast, a positive (M-X) would mean that the country has a trade surplus. CA is, therefore, related to savings and investment, as changes in these factors, along with government budget, influence the trade balance and foreign capital flows.