Question

using the national saving and investment identity, if private investment equals $87000 , private savings equals $27000 , and public savings equals $44000 , what does the trade deficit equal?

Answer 1

Using the national saving and investment identity, if private investment is $87,000, private savings $27,000, and public savings $44,000, the trade deficit equals $16,000.

Step-by-step explanation:

To calculate the trade deficit using the national saving and investment identity, we can use the formula (X - M) = S + (T - G) - I, where:

(X - M) represents the trade balance (exports minus imports), also known as the trade surplus or deficit.

S represents private saving.

(T - G) represents public saving (tax revenue minus government spending).

I represents private investment.

In this scenario, the formula becomes (X - M) = $27,000 (private savings) + $44,000 (public savings) - $87,000 (private investment). Therefore, when we sum the private and public savings ($27,000 + $44,000) and subtract the private investment ($87,000), we obtain:

(X - M) = $71,000 - $87,000 = -$16,000

This result indicates a trade deficit of $16,000.