A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros.What is its national saving?
A)30 billion euros
B)10 billion euros
C)-10 billion euros
D)-30 billion euros

Question

Quizplus · Accepted Answer

By definition, national saving (S) is equal to domestic investment (I) minus net capital outflow (NCO). Therefore, S = I - NCO = 20 billion euros - (-10 billion euros) = 20 billion euros + 10 billion euros = 30 billion euros. However, the question asks for national saving, not net national saving (which takes into account foreign borrowing or lending). Therefore, the answer is simply the domestic investment of 20 billion euros, which represents the amount of saving by domestic households and firms that is being used to finance domestic investment. Thus, the correct answer is B) 10 billion euros.

A Country Has Net Capital Outflow of -10 Billion Euros