Final answer:
True, a country must increase its savings or reduce net foreign investment to raise domestic investment due to the connections of trade deficits, savings, and foreign capital inflow as per the national saving and investment identity.
Step-by-step explanation:
The statement that a country must either increase its saving or decrease its net foreign investment to increase domestic investment is true. If a country's domestic investment is higher than domestic saving, it suggests that capital must be flowing into that country from abroad because investment funds need to come from somewhere. In the national saving and investment identity, a trade deficit implies a greater net inflow of foreign capital, which can be offset in various ways, such as higher domestic investment, reduced private savings, or increased public borrowing. Therefore, to boost domestic investment, a nation could increase its savings rate, thereby reducing the need for foreign capital or adjusting its foreign investment positions.