In the open-economy macroeconomic model,the market for loanable funds identity can be written as
A)S = I
B)S = NCO
C)S = I + NCO
D)S + I = NCO

Question

Quizplus · Accepted Answer

The market for loanable funds identity relates national saving (S) to domestic investment (I) and net capital outflow (NCO), which represents the difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreign residents. This identity shows that total national saving is either used for domestic investment or to finance foreign investment in the form of NCO. Therefore, choice C, S = I + NCO, correctly reflects the relationship between the different components of the economy's savings and investment. Choices A, B, and D are incomplete or incorrect representations of the market for loanable funds identity.

In the Open-Economy Macroeconomic Model,the Market for Loanable Funds Identity